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

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Linking Production to Global Markets

Todd A. Crawford Principal Economist The Conference Board of Canada Jakarta, Indonesia

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 Farming Indonesia – Coffee Processing

• 5%

15% 35% 55% 75% 95% Imports Use by other industries Exports Inventories Consumption

• 5%

15% 35% 55% 75% 95% Imports Use by other industries Exports Inventories Consumption

Coffee Farming

• 5%

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

Coffee Processing

• 5%

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

Key Apparel Inputs - Indonesia

Textiles 69% Energy 4% Transportation 3% Financial services 2% Chemicals & plastics 2% Business services 5% Other 15% Other 31%

Apparel Production Process

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

Key Apparel Inputs - Mexico

Textiles 68% Energy 1% Transportation 2% Financial services 1% Chemicals & plastics 5% Business services 9% Other 14% Other 32%

Textile Manufacturing

Indonesia tends to export more textiles and use less of their own domestic textiles in their apparel manufacturing process.

0% 10% 20% 30% 40% 50% 60% 70% 80% Share of total use supplied by imports Raw textiles export share Share of total supply consumed by

• ther industries

Indonesia Mexico India

Apparel Manufacturing

As income increases, the domestic market will account for a growing share of Indonesia’s apparel.

0% 10% 20% 30% 40% 50% 60% 70% 80% Domestic Consumption % Export % Indonesia Mexico India

Key Footwear Inputs - Indonesia

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

Footwear Production Process

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

Leather products

India is the world’s 2nd 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.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Domestic supply / Total Use Export % of leather products Imports % of total use Indonesia Mexico India

Key Footwear Inputs - India

Leather and animal hides, 91% Other, 9%

Indonesian Value-Added More Consistent with Mexico than India

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 Indonesia Mexico India Value-added coefficient

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
• ther 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

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

Changes in the Value-Chain Over Time

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Agriculture & Mining Manufacturing Business Services Other 2001 2011

Value-Added Contribution to Exports by Industry

Industry % of value in total exports % of value accrues 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

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

Sources of Imported Value Changing Over Time

30% 40% 50% 60% 70% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Non-OECD OECD

Value Chains are Becoming More Regional

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

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