comparator regions, by sector, 2015

Figure 1.11 Backward and forward GVC participation in Latin America and the Caribbean and selected comparator regions, by sector, 2015

a. Backward participationa

Agriculture Mining and quarrying Food and beverages Textiles and wearing apparel Petroleum, chemical, and nonmetallic mineral products Metal products Electrical and machinery Transportation equipment Wholesale trade Transportation Post and telecommunications Financial and business activities

0 10 20 30 40 Share of sectoral exports (%)

b. Forward participationb

Agriculture Mining and quarrying Food and beverages Textiles and wearing apparel Petroleum, chemical, and nonmetallic mineral products Metal products Electrical and machinery Transportation equipment Wholesale trade Transportation Post and telecommunications Financial and business activities

0 10 20 30 40 Share of sectoral exports (%) East Asia and Pacific Europe and Central Asia Latin America and the Caribbean Source: World Bank, based on Eora global supply chain database (https://worldmrio.com/); Borin and Mancini 2019; World Development Indicators database; and global value chain (GVC) taxonomy data from World Bank 2020b. Note: The figures show simple averages across countries and include only countries that are part of the GVC taxonomy and were eligible for World Bank lending as of 2000. a. Backward GVC participation refers to the use of imported inputs in production for export. b. Forward GVC participation refers to the export of inputs used in production for the importing country’s exports.

Imported inputs used in the electrical and machinery sector represent only 2 percent of the region’s total exports, compared with 4.1 percent in Europe and Central Asia and 6.6 percent in East Asia and Pacific (figure 1.12, panel a). Imported inputs used in apparel represent only 2.5 percent of Latin America and the Caribbean’s total exports, below the roughly 3.5 percent in East Asia and Pacific and Europe and Central Asia. The contribution of imported inputs to metals is also smaller in Latin America and the Caribbean than in Europe and Central Asia, as are the contributions of imported inputs in other sectors. By contrast, the contribution of imported inputs to the food and beverages sector in total backward GVC participation is larger in Latin America and the Caribbean than in its comparator regions. Traditional wholesale and transportation services contribute the largest portion to backward GVC participation in Europe and Central Asia, followed by Latin America and the Caribbean and East Asia and Pacific.

As for forward GVC participation, domestic value added created in agriculture and mining that is reexported by Latin America and the Caribbean’s bilateral trading partners contributes 1.6 percent and 3.3 percent, respectively, to the region’s total exports, compared with 1.2 percent and 2.5 percent, respectively, in Europe and Central Asia (figure 1.12, panel b). These sectors’ contribution is even higher in East Asia and Pacific. The lower contribution of manufacturing and services to forward GVC participation in Latin America and the Caribbean than in Europe and Central Asia reflects the former region’s sectoral specialization in exports of commodities and in final goods and services.

GVC participation at the firm level is linked to better export performance

In practice, it is not countries or industries that trade but firms (World Bank 2020b). Customs datasets containing information on firms’ export and import transactions can be used to construct measures of GVC participation parallel to those based on the country and industry information in global input-output tables.

A firm is defined as “GVC participating” if it is an exporter-importer—that is, it exports some products and imports intermediate inputs or capital goods. Such a firm is using foreign value added in its production destined for export. This definition is the micro analog of the definition of backward GVC participation at the country or at the country and industry level.12 Exporter-only firms, in contrast, export some products but do not import inputs or capital goods.

The importance of GVC participating firms in the total number of exporters is highly variable across Latin American and Caribbean countries but is often lower than in Europe and Central Asia (figure 1.13, panel a). El Salvador, Paraguay, and Uruguay exhibit the largest shares of GVC participating firms (about 60 percent) whereas Chile, Ecuador, and Peru exhibit the lowest shares (just under 40 percent). European and Central Asian countries exhibit substantially higher shares.