Linking Production to Global Markets Todd A. Crawford Principal - PowerPoint PPT Presentation

Linking Production to Global Markets Todd A. Crawford Principal Economist The Conference Board of Canada Jakarta, Indonesia Partner: Project Executed by:

What we learned yesterday Approach to Global Value Chain (GVC) Analysis Input-Output Tables Production Process and End-Uses of 3 Indonesian Commodities Key Inputs

Coffee Indonesia – Coffee Processing Indonesia - Coffee Farming 95% 95% Imports Imports 75% 75% Use by other Use by other industries industries 55% 55% Exports Exports Inventories Inventories 35% 35% Consumption Consumption 15% 15% -5% -5%

Coffee Farming Indonesia Colombia India 95% 75% Use by other industry 55% Net Exports Inventories Consumption 35% 15% -5%

Coffee Processing Indonesia Colombia India 95% 75% Use by other industry 55% Net Exports Inventories Consumption 35% 15% -5%

Key Apparel Inputs - Indonesia Business services 5% Other Textiles 15% Other 69% Chemicals & 31% plastics 2% Energy Financial services 4% 2% Transportation 3%

Apparel Production Process Services Domestic Energy Domestic consumption Consumption Chemicals and plastics Basic Chemicals Synthetic fibers, Textiles Apparel Exports resins, plastics Natural fibers Energy Other industrial use Transportation Exports Other inputs

Key Apparel Inputs - Mexico Business services 9% Textiles Other Other 68% 14% 32% Chemicals & Energy plastics 1% 5% Transportation Financial services 2% 1%

Textile Manufacturing Indonesia tends to export more textiles and use less of their own domestic textiles in their apparel manufacturing process. 80% 70% 60% 50% 40% 30% 20% 10% 0% Share of total use supplied by Raw textiles export share Share of total supply consumed by imports other industries Indonesia Mexico India

Apparel Manufacturing As income increases, the domestic market will account for a growing share of Indonesia’s apparel. 80% 70% 60% 50% 40% 30% 20% 10% 0% Domestic Consumption % Export % Indonesia Mexico India

Key Footwear Inputs - Indonesia Other, 18% Financial Leather and services, 4% animal hides, 29% Transportation, 5% Textiles Energy and fibers 8% 13% Chemicals and Business plastics services 11% 12%

Footwear Production Process Textiles and Animal products fibers Domestic & related Domestic consumption services Consumption Chemicals and plastics Wholesaling Leather and Services Plastics Footwear Exports leather products Energy Rubber Other industrial use Exports Transportation Other inputs

Leather products India is the world’s 2 nd largest footwear producer. Its leather products industry is aligned with supplying its footwear manufacturers. As a result, it imports relatively less of what it needs. 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Domestic supply / Total Use Export % of leather products Imports % of total use Indonesia Mexico India

Key Footwear Inputs - India Other, 9% Leather and animal hides, 91%

Indonesian Value-Added More Consistent with Mexico than India 0.50 Value-added coefficient 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 Indonesia Mexico India

Summary of Input-Output Information • Input-Output analysis reveals detailed information about the production process of a good in a particular country. • A solid understanding of the production process provided by Input-Output tables is a necessary first step in identifying inefficiencies in the supply-chain. • Comparing the production process of similar goods between Indonesia and other countries can provide valuable insights so that we can be sure that we are asking the right questions. • Ultimately however, input- output tables tell us very little about how Indonesia’s production process integrates with global markets.

Linking to Global Markets • The value-chain associated with exporting commodities goes way beyond the simple production process. • All exports include things like research and design, marketing information, management consulting, wholesaling, transportation and logistics support, etc. • One way to look at all of the value associated with Indonesian exports is to explore the concept of “Trade in Value - Added” (TiVA) • This type of analysis helps us to go beyond where Indonesia sources its inputs from, and also helps provide insights about where these higher value-added services are taking place.

What is Trade in Value Added? • A relatively new joint initiative between the OECD and WTO to measure the true value embedded in global trade flows. • Tracks international data using a cross-country I/O framework to link production of different inputs to gain information about where value is added from the product’s inception to export. • Datasets are managed by OECD and can be found at: https://stats.oecd.org/index.aspx?queryid=75537 • Consists of 3 main tables • Origin of Value-Added in Gross Exports • Origin of Value-Added in Gross Imports • Origin of Value-Added in Final Demand

What information does TiVA show? • Domestic versus Foreign value-added content of gross exports, by exporting industry • Services content in exports, by type of service and by country of origin • Helps to determine which activities along a value-chain that are conducted in Indonesia, and those that are not • Highlights the fact that participation in GVCs via intermediate imports embodied in another industry’s exports • The “True” origin of value - added in export partner’s consumption (households and governments) and investment

Example – All Industry Exports 250 90% Total Value-Added in Gross Exports ($ US - billions) 89% Indonesia Share of Value-Added 200 88% 87% 150 86% 85% 100 84% 83% 50 82% 0 81% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Changes in the Value-Chain Over Time 50% 2001 2011 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Agriculture & Manufacturing Business Services Other Mining

Value-Added Contribution to Exports by Industry Industry % of value in % of value accrues total exports to Indonesia Total 100 % 88.0 % Agriculture & Mining 44.2 % 91.1 % Manufacturing 26.2 % 88.0 % Total Business Services 26.5 % 83.2 % Wholesale & Retail Trade 15.8% 88.1 % Transportation & Storage 5.0 % 81.6 % Financial Services 2.2 % 75.4 % Renting Machinery & Equipment 0.4 % 66.6 % Computer & Related Activities 0.3 % 43.1 % Real Estate 1.6 % 87.5 % R&D & Other Business Activities 1.2 % 49.4 %

Services Embedded in Exports 250 40% Total Value-Added in Gross Exports ($ US - billions) 200 35% 150 30% 100 25% 50 20% 0 15% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Sources of Imported Value Changing Over Time Non-OECD OECD 70% 60% 50% 40% 30% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Value Chains are Becoming More Regional 60% Singapore 50% 6% Korea 4% 5% 5% Malaysia 40% 4% 5% 6% U.S. 12% 30% 8% Japan 20% 15% 10% China 10% 4% Saudia Arabia 12% 7% 0% 2000 2011

Next Steps • The example showed how Indonesian exports interact with global markets and what share of income Indonesia captures for the aggregate economy. • But TiVA tables can also look at the source of value on an industry-by- industry basis. Working Group • Find the export value chain for 2 industries: agriculture & textiles, apparel, and footwear • Determine how much value Indonesia captures when they export those products • Determine how much services play a role in these export goods • Find out which sections of the value chain Indonesia captures a larger and small share of the total value