The persistence of global value chains in an uncertain world
Despite multiple shocks and debates on deglobalisation, world trade remains organised in global value chains (GVCs).
There is no trend towards reshoring or regionalisation at the aggregate level – but there is a reorganisation of GVCs, especially in Asia.
GVCs have changed countries’ exposure and ability to cushion against shocks.
Multinational enterprises continue to play a key role in the structure of GVCs and patterns of trade.
Global value chains continue to shape economic activity
Over the past few decades, the world has experienced an unprecedented wave of economic integration. It is now common for the different stages of a production process (e.g. design, production, marketing, manufacturing, assembly, distribution) to be carried out in different countries. In 2020, as much as 60% of global trade was accounted for by intermediate products, that is products that are not destined to final users but are used as inputs by other firms. These intermediates consist of physical goods and services. In 2020, services represented about 38% of all trade in intermediates. Furthermore, about 12% of global trade is represented by capital products serving investment purposes. In effect, with production highly fragmented across national borders, economic activity is organised within GVCs.
A series of recent crises has called into question, however, the role of GVCs in the economic system. First, the disruptions caused by the COVID-19 pandemic placed supply chain resilience at the forefront of economic policy debate. Then, the Russian Federation’s invasion of Ukraine highlighted vulnerabilities occurring from overdependency of small numbers of suppliers critical sectors such as energy and cereals. Yet even before these events it had been suggested that a widespread tendency towards re-shoring or near-shoring production might be making value chains shorter and more regional.
In fact, the data currently available on trade, investment, and multinational enterprises show that although the pace of globalisation has slowed in the last decade, GVCs remain a central feature of the world economy. In a scenario of increasing uncertainty, however, GVCs will require policies that carefully balance the benefits of trade and specialisation with emerging challenges.
There is no evidence of a general trend towards deglobalisation
A good indicator to assess the extent to which deglobalisation is taking place is the import intensity of production. This measures the international fragmentation of production (i.e. globalisation) by adding together all gross imports of intermediate inputs along the value chain and expressing the result as a percentage of gross
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output. Computed from data in current prices, the import intensity of production suggests that although still high by historical standards, the international fragmentation of production at the global level has decreased over the past decade (Figure 1A, light blue line). This could be interpreted as evidence of a deglobalisation trend
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The
persistence of global value chains in an uncertain world
starting around 2011. Over the 2010s, however, the world economy experienced an important decrease in the price of raw materials (Figure 1B). This would naturally tend to reduce the value of imported intermediate inputs and the import intensity of production even if the volume traded stays unchanged. In fact, the data in constant prices (Figure 1A, dark blue line) do not provide much
evidence of deglobalisation: the fragmentation of production did stop growing around 2011, but remained fundamentally flat afterwards until 2019. The data for the year 2020 do display a drop, but they are affected by the temporary effects of the COVID-19 crisis. Overall, after adjusting for changes in prices, the data show there was no global trend towards deglobalisation.
There is no trend towards reshoring or regionalisation of supply chains
Among major economies, the only one to exhibit a marked decrease in the import intensity of production over the past decade is the People’s Republic of China (hereafter “China”) (Figure 2A). China’s declining reliance on imported inputs, however, does not result from re-shoring previously off-shored production, but reflects an upgrade of the country’s position in GVCs as it moves away from processing trade and final assembly to the development of branded products incorporating domestic inputs. In fact, China’s use of imported inputs in 2020 remained relatively high compared to the average of OECD countries.
More generally, there is no evidence of widespread regionalisation of supply chains. Figure 2B represents an indicator of how many production stages take place within, as opposed to outside, a given region. The one region where supply chains did become more regional between 2011 and the pandemic is East Asia & Pacific, but the changes are not remotely as significant as those that took place in the 2000s.
GVCs have changed countries’ exposure and ability to cushion against shock
International trade connects domestic producers to distant consumers through trade of final products. Just as importantly, it links distant producers within an intricate network of international supply chains. The existence of links between geographically remote sequential production stages means that even locations that are far apart are often economically interdependent. On the one hand, this means that economies are exposed to a wide range of shocks potentially originating either upstream or downstream in the supply chains at distant locations.
On the other hand, GVCs offer firms many alternatives in terms of input sourcing or output markets (e.g. new suppliers and clients) and these alternatives make it easier to adjust to shocks.
Vulnerabilities to shocks associated with high GVC dependence are more significant when suppliers or buyers have a high degree of geographic concentration. In this sense, large manufacturers like China are among the most critical potential choke points in GVCs across a broad range of industries. Conversely, policies that promote more localised and less flexible value chains are likely to be costly and do not necessarily
offer more stability in the face of shocks. Geographical diversification of inputs sources and output destinations – and more generally open and flexible GVCs – can offer better possibilities of adjustment to disruptions.
The analysis of trade dependencies at the level of individual products (HS6) shows broad regionalisation and structural trends that are generally in line with those identified by the more aggregate TiVA data. A country is considered to be dependent on a certain partner for a specific product if it relies on that partner for a high share of its imports of that product, and if the supply of the product in question is highly concentrated at the global level. For most countries, such dependencies are more likely to arise with partners located in their region (Figure 3) and in the context of deep trade integration initiatives such as the European single market or the United States-Mexico-Canada Agreement. Over time, however, dependencies have become gradually more extra-regional for countries in Europe and the Americas, while they have become more regional for countries in Asia since the late 1990s.
Note:
product is equal to or higher than 10%).
Source: OECD calculations using the BACI data.
MNEs account for a large and stable share of the global economy
While the debate on economic security often focuses on trade, economic interdependencies also arise through investment, and Multi-National Enterprises (MNEs) are important players in the global economy.
• At the world level, foreign affiliates of MNEs accounted for 15% of total gross output in 2019. Following a period of rapid growth leading up to the 2007-2008 Financial Crisis, this share has been fundamentally stable since (Figure 4A).
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• MNEs contribute to global production with their domestic activities (headquarters and other home country establishments), which according to preliminary estimates account for approximately an additional onefifth of global gross output.
• The presence of foreign-owned firms is more prevalent in certain industries than in others (Figure 4B).
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• MNE activity tends to be concentrated in OECD countries. Of all the gross output produced by foreign affiliates globally, 71% is produced by affiliates of MNEs headquartered in OECD countries. Conversely, 57% is produced by foreign affiliates located in OECD countries.
• Compared to domestic companies, foreign affiliates tend to export a greater share of their output (Figure 4C) and to make greater use of intermediate inputs (so that their valueadded/output ratio is lower) (Figure 4D). These intermediates are also more likely to be sourced from abroad. Even so, the interactions between foreign affiliates and their host economies generally appear to be quite strong.
Global gross output of foreign-owned firms
Foreign affiliates’ share of global gross output by industry
Sources of inputs
Destination of output
GVC policies should fortify resiliency, and environmental and social sustainability
Despite ongoing debate questioning the future of globalisation, international supply chains continue to play a pivotal role in the global economy. Countries must strategically balance the benefits of trade and international specialisation with emerging challenges. These include fortifying the resilience of supply networks and promoting environmental and social sustainability in GVCs.
• Minimise trade frictions to enhance competitiveness and resilience:
Trade facilitation and the dismantling of trade barriers are crucial for firms to serve foreign markets and access essential intermediate inputs. This is especially beneficial for developing economies and small- to medium-sized enterprises, enabling them to integrate existing GVCs without the necessity of establishing a complete value chain for their products. The unilateral elimination of barriers on intermediate inputs and participation in regional trade agreements with GVC provisions have bolstered the competitiveness and income levels in many countries. Furthermore, reducing trade frictions is vital to supply chain resilience and encourages trade diversification. It is important to note that border delays and additional costs can hinder firms from sourcing alternative suppliers during disruptions, potentially exacerbating shortages.
• The central role of services in GVCs:
Global production networks are heavily reliant on efficient logistics chains, necessitating robust network infrastructure and complementary services. Analysis of trade flows in value-added terms shows that services such as transport, logistics, finance, communication, and professional services are integral to goods exports.
The ICIO-TiVA database
Services as intermediate inputs contribute to over one-third of the total value-added in manufacturing exports. Enhanced service sectors significantly boost the competitiveness of manufacturing firms. Moreover, investments in services and infrastructure, including digital advancements, are essential for reinforcing supply chain resilience and promoting decarbonisation.
• The impact of comprehensive trade agreements: Trade agreements should encompass various aspects of GVCs, ranging from customs barriers and rules of origin to trade facilitation and services. Given the network and scale effects inherent in GVCs, broader participation in these agreements facilitates greater gains and more effective implementation of disciplines. GVCs underscore the economic rationale to expand negotiations at the multilateral and plurilateral levels, as barriers in third countries can be as impactful as those imposed by direct trade partners.
• Leverage trade to address global challenges:
Not all economies are equally prepared for the challenges faced by firms and workers in the postCOVID era. Uncertainties and adjustment to disruptions demand well-considered social policies and an efficient labour market. Inward-focused policies that lead to the disintegration of GVCs risk creating inefficiencies, reducing national incomes, and obstructing resilience and sustainability initiatives. The trend towards more sustainable supply chains, in both environmental and social terms, is evident in responsible business practices and the evolving provisions of trade agreements. These efforts must be supported, not hindered, by policies.
For more than a decade, the OECD’s Inter-Country Input-Output (ICIO) tables and associated Trade in Value Added (TiVA) indicators have been central in measuring and analysing economic globalisation. The 2023 update of the ICIO-TiVA database, launched on 22 November 2023, covers 76 countries (ten more than in 2022) and 45 industries over the period 1995 to 2020.
The ICIO-TiVA database can be extended in several directions. Two important extensions are the ICIO tables in Previous Year’s Prices (PYP) and the analytical database on the Activities of Multi-National Enterprises (AMNE). ICIO data in PYP are crucial for investigating the evolution of global production networks over time as they make it possible to distinguish actual changes in the volume of trade from the effects of price fluctuations. Conversely, the Analytical AMNE database provides statistical evidence on the role played by multinational firms and their network of affiliates in global value chains (GVCs), an aspect of the world economy on which data availability has traditionally been scant.
A release of ICIO data in previous year’s prices fully consistent with the 2023 edition of the ICIO-TiVA database is forthcoming. The Analytical AMNE database, for which a 2023 version is available online in preliminary form, is currently being updated to bring it in line with the latest release of ICIO-TiVA data.
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Further reading
• Inter-Country and Trade in Value Added data (2023 edition), http://oe.cd/tiva
• Analytical AMNE database: http://oe.cd/gvc-mne/
• Keys to resilient supply chains: https://www.oecd.org/trade/resilient-supply-chains/
• Arriola, C. et al. (2020), “Efficiency and risks in global value chains in the context of COVID-19”, OECD Economics Department Working Papers, No. 1637, OECD Publishing, Paris, https://doi.org/10.1787/3e4b7ecf-en
• Jaax, A., S. Miroudot and E. van Lieshout (2023), “Deglobalisation? The reorganisation of global value chains in a changing world”, OECD Trade Policy Papers, No. 272, OECD Publishing, Paris, https://doi.org/10.1787/b15b74fe-en
• OECD (2023), Strengthening clean energy supply chains for decarbonisation and economic security: OECD Report for the G7 Finance Ministers and Central Bank Governors, May 2023, Japan, OECD, Paris, https://www.oecd.org/economy/g7/
• Schwellnus, C. et al. (2023), “Global value chain dependencies under the magnifying glass”, OECD Science, Technology and Industry Policy Papers, No. 142, OECD Publishing, Paris, https://doi.org/10.1787/b2489065-en
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