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World Investment Report 2013: Global Value Chains: Investment and Trade for Development126

the highly integrated EU economy, which accounts

or some 70 per cent o EU-originated exports.

Japan and the United States show signifcantly

lower shares o such double counting.

Thus, while developing countries (25 per cent)

have a lower share o oreign value added than

the world average (28 per cent), their oreign value

added share is signifcantly higher than in the

United States and Japan or than in the EU, i

only external trade is taken into account. Among

developing economies, the highest shares o

oreign value added in trade are ound in East and

South-East Asia and in Central America (including

Mexico), where processing industries account or a

signifcant part o exports. Foreign value added in

exports is much lower in Arica, West Asia, South

America and in the transition economies, where

natural resources and commodities exports with

little oreign inputs tend to play an important role.

The lowest share o oreign value added in exports

is ound in South Asia, mainly due to the weight

o services exports, which also use relatively ewer

oreign inputs.

Box IV.2. Understanding value added trade data and indicators

A countrys exports can be divided into domestically produced value added and imported (oreign) value added that

is incorporated into exported goods and services. Furthermore, exports can go to a oreign market either or fnalconsumption or as intermediate inputs to be exported again to third countries (or back to the original country). The

analysis o GVCs takes into account both oreign value added in exports (the upstream perspective) and exported

value added incorporated in third-country exports (the downstream perspective). The most common indicators,

which will also be used in this report, are as ollows:

1. Foreign value added (oreign value added as a share o exports) indicates what part o a countrys gross

exports consists o inputs that have been produced in other countries. It is the share o the countrys exports

that is not adding to its GDP.a

2. Domestic value added is the part o exports created in-country, i.e. the part o exports that contributes toGDP. The sum o oreign and domestic value added equates to gross exports. Domestic value added can be

put in relation to other variables:

a. As a share o GDP, it measures the extent to which trade contributes to the GDP o a country.

b. As a share o global value added trade (the slice o the value added trade pie), it can be compared with a

countrys share in global gross exports or its share in global GDP.

3. GVC participationb indicates the share o a countrys exports that is part o a multi-stage trade process, by

adding to the oreign value added used in a countrys own exports also the value added supplied to other

countries exports. Although the degree to which exports are used by other countries or urther export

generation may appear less relevant or policymakers, because it does not change the domestic value added

contribution o trade, the participation rate is nonetheless a useul indicator o the extent to which a countrys

exports are integrated in international production networks. It is thus helpul in exploring the trade-investment

nexus.

The GVC participation rate corrects the limitation o the oreign and domestic value added indicators in which

countries at the beginning o the value chain (e.g. exporters o raw materials) have a low oreign value added content

o exports by defnition. It gives a more complete picture o the involvement o countries in GVCs, both upstream

and downstream.

A countrys GVC participation, measured as a share o exports, eectively assesses the reliance o exports on GVCs.In this sense, it is also an indicator o how much hypothetical damage to GVCs (and global GDP) would occur i a

countrys exports are blocked or, alternatively, it represents the vulnerabilityo the GVC to shocks in the respective

country.

GVC indicators can also be used to assess the extent to whichindustries rely on internationally integrated production

networks. Data on value added trade by industry can provide useul indications on comparative advantages and

competitiveness o countries, and hence orm a basis or development strategies and policies. A number o complex

methods have been devised in the literature to measure GVC length.c This report will use a simplifcation device

by looking at the degree o double counting in industries, which, conceptually, can serve as a rough proxy or the

length o GVCs.

Source: UNCTAD.

Note: Notes appear at the end of this chapter.