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1 of 30 R E A L MEASURING STRUCTURAL CHANGES IN TRADE INTEGRATION AND PRODUCTION NETWORK Norihiko Yamano, Colin Webb and Geoffrey Hewings 24-26 April 2012 Final WIOD Conference: Causes and Consequences of Globalization of 30 2

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MEASURING STRUCTURAL CHANGES IN TRADE INTEGRATION AND PRODUCTION NETWORK

Norihiko Yamano, Colin Webb and Geoffrey Hewings 24-26 April 2012 Final WIOD Conference: Causes and Consequences

  • f Globalization

1

R E A L

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Contents

  • Introduction
  • Structural changes
  • External dependency
  • Economic landscape by country
  • Key sectors
  • Risk of production disruptions
  • Concentration of export (supply) and import (sourcing)
  • Dominant partner share
  • Forward linkages on domestic and foreign productions

2

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Known structural changes in international trade and production networks

  • Evolution of global production networks (particularly in

Asia)

  • Fragmentation of production processes facilitated by

reduction of various transaction costs

  • Specialisations (comparative advantages) in specific

production stages (tasks) rather than products

  • Increasing trades in manufacturing parts and components
  • Intra-industry trade

 Concerns of vulnerability of global value chains Disruptions of production networks are observed by the unexpected events of natural and man-made disasters (2011 Earthquakes and Flood in Asia , Toyota and Honda)

3

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Fragmentation of production processes

4

Region A’s K - L Region B’s K - L Final goods production in one region Intermediates Intermediates Intermediates Intermediates Production of final goods 1 Production of final goods 2 Consumer A Consumer B Imd

Final 1

A

Fragmented production process (an extreme case)

Imd

Domestic transaction International(interregional) trade

Imd

Final 2

Imd Reg C Reg D Reg B Reg A

Foreign capital

B C D

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Economic theories of industry and trade

  • Identification of trade and industrial production activities

have been always in the central issues of economics and policy planners.

  • For example,
  • Increasing return to scale and imperfect competition
  • Urban and regional economics: Economies of agglomeration and

external

  • International economics: comparative advantage (Ricardo), factor

endowments (H-O), intra-industry

  • Growth theory: endogenous growth model, regional innovation

spillovers, intangible assets (knowledge/human capitals)

5

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Concentration or divergence?

Concentration by economies of scale

Internal economies (increasing return to scale) External / agglomeration economies

Localization: infrastructure sharing Urbanization: Knowledge intensive economy

Divergence

Constant return to scale type industries Higher transaction cost (services / heavy products) Diseconomies of scale (amenity, higher factor price) Geographical limitations on factor endowments Dispersion of risk

6

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WIOD Data sources

  • Bilateral Trade data
  • Basically cover all monetary flows of cross-border transactions
  • Over 5200 commodities (internationally harmonised)
  • Previous year data is available by summer of following year
  • Allows us to study by end-use categories: intermediates, household

consumption, capital, mixed use (personal computers, mobile phones, passenger cars, etc)

  • Annual Inter-country Input-Output and Supply-use tables
  • Explicitly links final demand, intermediate and value-added

components by sector

  • Direct and indirect economic impacts can be measured
  • Fundamental data source for various global model: environment

footprints, trade-in-value-added, productivity comparisons

7

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Basic indicators on structural changes

8

WIOD’s Inter-country I-Os are loaded in REAL I-O, an a generic toolbox of Input-Output (IO) analysis based on open-source architecture running on Windows XP/7 http://www.real.illinois.edu/realio/

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Intermediate import share (Europe,100%= total inputs)

9

5 10 15 20 25 30 35 40 45 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 HUN AUT SVK DNK CZE SWE PRT FIN ROM GBR GRC DEU ITA FRA ESP POL Services Goods

(%) Source: WIOD April 2012

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Intermediate import share (Other regions, 100%= total inputs)

10

(%)

5 10 15 20 25 30 35 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 CAN MEX USA TWN IDN KOR AUS IND CHN JPN TUR RUS BRA Services Goods

Source: WIOD April 2012

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Intermediate export ratio (manufacturing)

11

Source: OECD BTDIxE, 2011

World average = 56% in 2010

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Sector shares of output (1995 and 2009)

12

Percent share Country Source: WIOD April 2012

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Germany (2009)

13

Source: WIOD April 2012 FWD BWD

Germany (2009) France (2009) Economic landscape (MPM)

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China (2009) Japan (2009)

14

  • Ref. Germany (2009)

Source: WIOD April 2012 FWD FWD BWD BWD

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NLD(1995) NLD(2005)

15

  • Ref. Netherlands(1995)

Source: OECD I-O April 2012 FWD FWD BWD BWD

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Key sectors (defined by FL and BL)

16

ISIC/NACE code Country

AtB C 15t16 17t18 19 20 21t22 23 24 25 26 27t28 29 30t33 34t35 36t37 E F 50 51 52 H 60 61 62 63 64 J 70 71t74 L M N O P

AUS 2009

  • B-

B- B- BF BF BF BF BF BF BF B- BF B- B-

  • B-
  • B-

B- B- B- B-

  • F
  • AUT

2009 BF

  • F

B- B- B- B- B- BF B- BF BF BF B- B- B- B- BF B-

  • BF

B- B-

  • F
  • BEL

2009 B-

  • F

B- B- B- B- B- B- B- B- B- B- B- B- B- B-

  • B-
  • B-

BF B- BF B-

  • BGR

2009

  • F

B- B- B- BF BF BF BF BF BF BF B- BF B- B- BF B-

  • F
  • BF
  • F
  • F
  • F
  • B-

BRA 2009

  • F

B- B- B- B- B- B- BF BF B- BF B- B- B- B-

  • B-
  • CAN

2009 BF

  • F

B- BF BF BF BF BF BF BF BF BF BF BF B- B-

  • F

B-

  • F
  • F
  • F
  • F

BF BF

  • F
  • F
  • F
  • CHN

2009

  • B-

B- B- B- B- B- B- B- B- B- B- B- B- B- B- B-

  • B-
  • B-
  • B-
  • CYP

2009 B-

  • B-

B- B- B- B- B- B- B- B- B- B- B- B- B- B-

  • B-
  • B-

B-

  • CZE

2009

  • F

B- B- B- BF BF BF BF BF B- BF B- BF B- B-

  • B-
  • F
  • F

BF B-

  • F
  • DEU

2009 BF BF B- B- B- BF BF BF B- BF BF BF B- B- B- B-

  • F

B-

  • F

B- B- BF

  • F

BF

  • F
  • DNK

2009 B-

  • F

B- B- BF BF BF BF B-

  • F

BF BF B- B- BF B-

  • B-
  • BF

B- BF

  • F
  • F
  • F
  • ESP

2009

  • BF

B- B- B- B- B- B- B- B- B- B- B- B- B- B- B- B- B-

  • B-

B- B-

  • EST

2009 B-

  • F

B- B- B- B- BF

  • F

BF BF BF BF BF BF B- B-

  • B-
  • B-

BF B- BF

  • F
  • F
  • F
  • FIN

2009

  • F

BF B- B-

  • B-

B- BF BF BF BF BF B- B- B- B-

  • F

B-

  • F

B- B- BF

  • F
  • F
  • FRA

2009 B- BF B- B- B- BF BF BF B- BF BF BF B- B- B- B- B- B-

  • B-
  • F
  • F
  • F
  • GBR

2009

  • F

B- B- BF BF BF B- BF BF BF BF B- BF B- B- BF B-

  • B-
  • F
  • F
  • F
  • F
  • B-
  • GRC

2009

  • F

B- B- B- BF BF B- BF BF BF BF BF BF B- B-

  • F

B-

  • B-
  • B-
  • F
  • F
  • BF
  • HUN

2009 B- BF B- BF B- BF BF BF BF BF B- BF B- B- B- B- B- B-

  • B-
  • BF

B-

  • F
  • F
  • IDN

2009

  • B-

B- B- B- B-

  • B-

B-

  • B-

B- B- B- B- B- B-

  • B-

B-

  • B-
  • B-

IND 2009

  • F

B- B- B- BF BF BF BF BF BF BF B- B- B- BF BF B-

  • F
  • B-

B-

  • B-
  • F
  • F
  • F
  • IRL

2009 B- B- B- B-

  • B-

B- B- B- B- B- B- B- B- B- B- B-

  • B-

B- B- B- B-

  • ITA

2009

  • F

B- B- B- BF BF B- BF B- BF BF B- B- B- B- B-

  • B-

B-

  • F

B- B- BF

  • F
  • JPN

2009

  • BF

B- B- B- B-

  • B-

B- B- B- B- B- B- B- B- B- B- B-

  • B-

B-

  • KOR

2009

  • F

B- B- B- B- B- B- B- B- B- B- B- B- B- B- B- B-

  • B-
  • LTU

2009 B-

  • F

B- B- BF B- BF B- B- BF B- BF BF BF B- B- B- B-

  • F

B-

  • LUX

2009 B- B- B- B- B- B- B- B- B- B- B- B- B- B- B- B-

  • B-
  • B-

B-

  • B-
  • LVA

2009 B-

  • B-

B-

  • B-

B- B- B- B- B- B- B- B- B- B- B-

  • B-

B-

  • MEX

2009

  • F
  • F

B- BF B- BF BF BF BF BF

  • F

BF BF BF B- B- BF B-

  • F
  • B-
  • F
  • F
  • MLT

2009 B-

  • B-
  • B-

B- B- BF B- B- B- B- B- B-

  • B-

B-

  • B-
  • B-

B-

  • B-
  • B-
  • NLD

2009 B-

  • F

B- B- B- BF BF B- B- BF BF BF B- B- BF

  • BF

B-

  • F
  • F
  • F
  • F

B- B-

  • F
  • F
  • F
  • F
  • POL

2009 B-

  • F

B- B- B- BF BF BF BF BF BF BF B- BF B- B-

  • F

B-

  • F
  • F
  • F
  • F

BF BF BF

  • F
  • F
  • PRT

2009

  • F
  • F

B- B- B- BF B- BF BF BF BF BF B- BF B- B- BF B-

  • F

B- B-

  • F
  • F
  • ROM

2009

  • BF

B- B- B- B- BF B- BF BF BF BF B- BF B- B- BF B- B-

  • B-
  • BF

B-

  • F
  • F
  • BF
  • B-
  • RUS

2009

  • B-

BF B- B- BF BF BF BF B- BF B- B- B- B- BF B-

  • B-

B-

  • SVK

2009

  • F

B- B- B-

  • B-

B- B- B- B- B- B- B- B- B- B- B-

  • B-
  • F

BF B-

  • SVN

2009

  • B-

B- B- B- B- BF B- B- B- B- B- B- B- B-

  • B-
  • B-

B-

  • SWE

2009

  • B-

B- B- B- B- B- B- B- B- B- B- B- B-

  • B-
  • B-
  • B-

B- B- B-

  • TUR

2009

  • F

B- B- B- BF BF BF BF BF BF BF B- BF B- B- BF B-

  • F
  • F
  • F

B-

  • F
  • F
  • F
  • TWN

2009

  • F

B- B- B- BF BF

  • F

BF B- BF BF B- B- B- B- BF B- B-

  • B-

B-

  • F
  • F
  • USA

2009 BF

  • F

B- BF BF BF BF BF BF BF BF BF B-

  • F

B- B-

  • B-
  • F

B- B-

  • F
  • F
  • F
  • Source: WIOD April 2012
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Potential production disruptions?

17

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Bilateral trade database and Inter-country Input-Output system for production disruption analyses

  • WIOD-type dataset is useful for vulnerability analyses
  • f global production network
  • Identifying potential risks
  • Evaluation of potential disruptions of global supply

chains

  • Contingency plans

18

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Indicators to identify the risks of potential production disruptions

  • Supply-side
  • Supply concentration (production activities, exports supplies)

= variance (export share of good to world supply)

  • International forward linkage (Hirschman / Jones)

V (G) = Output, G=Ghosh inverse, V = value-added FWDi = Sum_j Gij VA supplied to domestic output = X(Vd, d) =[Vd G]d VA supplied to domestic output = X(Vd, f) =[Vd G]f Domestic supply ratio = X(Vd, d) / (X(Vd, d)+X(Vd, f) )

  • Demand-side
  • Selection of trade partners

Average partners purchasing share from country k = mean( Import_kp /sum Import_p )

19

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Concentration index of exports (Textile, apparel and footwear)

variance (export share of good to world supply)

Total Intermediate HH consumption Production textile and apparels is exports are concentrated (in particular household consumption goods)

20

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Concentration index of exports (Chemicals and Steel production)

variance (export share of good to world supply)

Supplies of heavy industry become less concentrated

21

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Concentration index of exports (Electronics products)

variance (export share of good to world supply)

Computer production become diverged in late 1990s and concentrate again in the late

  • 2000s. Productions of other

electronics equipment diversified Computing machinery Communication equip. e.g phone, TV Electric machinery

22

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Concentration index of imports (Electronics products)

variance (import sourcing share to total import of countries)

Intermediate of communication equip. and electronic machinery significantly increased in latest 2000s => Emergence “risk” Electric machinery Communication equipment

23

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Summary of concentration indices of export and import (1995-2009)

24

Divergence Concentration Concentration Divergence

Export Supply Global share Import from Various Country

Stable: Agricultur al, Mining and Refinery

late90s late00s

Chemical and basic metals

Early 00s

Computers

late00s

Electric machinery

late90s late00s late90s

Communication equipments Textiles

late90s

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25

Partners’ average purchasing ratio by sourcing country

0% 5% 10% 15% 20% 25% 1990 1995 2000 2005 2010

DEU USA JPN CHN NLD SGP

0% 5% 10% 15% 20% 25% 1990 1995 2000 2005 2010

DEU USA JPN CHN TWN KOR

ISIC 30: Computers ISIC 32: Communication equipments

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26

Partners’ average purchasing ratio by sourcing country

ISIC33: Optical and precision instruments ISIC 34: Motor vehicles

0% 5% 10% 15% 20% 25% 1990 1995 2000 2005 2010

DEU USA JPN CHN FRA ITA

0% 5% 10% 15% 20% 25% 1990 1995 2000 2005 2010

DEU USA JPN CHN FRA ITA

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27

ICIO Forward linkage and domestic supply ratio (ISIC24: chemical products)

0.5 1 1.5 2 2.5 3 3.5 4 4.5 1995 2000 2005 2010 CHN USA JPN KOR GBR DEU TWN FRA 10 20 30 40 50 60 70 80 90 100 1995 2000 2005 2010 CHN USA JPN KOR GBR DEU TWN FRA

Source: WIOD April 2012 (%)

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28

ICIO Forward linkage domestic supply ratio

ISIC30-33: Electronics ISIC34: Motor vehicles

Source: WIOD April 2012

10 20 30 40 50 60 70 80 90 100 1995 2000 2005 2010 CHN DEU JPN KOR TWN USA 10 20 30 40 50 60 70 80 90 100 1995 2000 2005 2010 CHN DEU FRA GBR ITA JPN MEX USA

(%) (%)

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29

ICIO Forward linkage domestic supply ratio

ISIC71-74 Business Services ISIC J: Financial intermediation

Source: WIOD April 2012

10 20 30 40 50 60 70 80 90 100 1995 2000 2005 2010 (%) CHN DEU FRA GBR ITA JPN LUX USA 10 20 30 40 50 60 70 80 90 100 1995 2000 2005 2010 (%) CHN FRA GBR JPN MEX USA NLD BEL

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30

Summary

  • Not surprising results. But, empirically able to visualize

the potential risks.

  • Dominant supplying countries have shifted in many
  • products. Concentrations of export supplies and import

sourcing eventually may have increased risk of production disruption.

  • Emergence of Chinese products in export / import

markets are obvious, however, Chinese primary inputs end-up most in domestic market (e.g. final goods + near- final intermediates).

  • Combining the indicator results, complex structures of

global supply chains can be further examined.

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R E A L

Interregional Trade in the Midwest of the US

Activity tree structure for interregional/interactivity loops

Largest first interregional/activities feedback loop -13.2 % Re Mi Oh In Wi Il P P P P P P M M M M M M S S S S S S Second largest interregional/activities feedback loop - 8.3 % Re Mi Oh In Wi Il P P P P P P M M M M M M S S S S S S Third largest interregional/activities feedback loop - 4.3 % Re Mi Oh In Wi Il P P P P P P M M M M M M S S S S S S

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R E A L

Spatial Structure of Japan and US Economies

Table 12. Trade in Japan, 1990: Qualitative presentation of the hierarchy

  • f inter-activities feedback loops.

Hokkaido Tohoku Kanto Chubu Kinki Chugoku Shikoku Kyushu Okinawa

P M S P M S P M S P M S P M S P M S P M S P M S P M S

Hokkaido

P M S

Tohoku

P M S

Kanto

P M S

Chubu

P M S

Kinki

P M S

Chugoku

P M S

Shikoku

P M S

Kyushu

P M S

Okinawa

P M S

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UK (2009) US (2009)

33

  • Ref. Germany (2009)

Source: WIOD April 2012 FWD FWD BWD BWD

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Korea(1995) Korea(2005)

34

  • Ref. Korea (1995)

Source: OECD I-O April 2012 FWD FWD BWD BWD