The trade in Value Added of the European Union regions

Transcription

1 The trade in Value Added of the European Union regions Barbero J., Díaz-Lanchas J., Lecca P. and Mandras G. Joint Research Centre Serving society Stimulating innovation Supporting legislation 24/10/2018

2 Introduction (I) Changes in the nature of production and international trade: Growing International fragmentation of production and emergence of global value chains (GVCs): The production of a single good takes place across several countries. Inputs cross borders many times Problem with standard trade statistics: international trade record the gross value of goods as they cross borders. Substantial double-counting: gross exports overstate the amount of domestic value-added in exports. Sectors of origin of value-added.

3 Introduction (II) Related literature in Value-Chain and Value-added Trade: from a product to a global view Single product: Dedrick, Kraemer, and Linden,2008 Single country: Vertical specialization: Hummels, Ishii, Yi, 2001 Domestic value-added: Koopman, Wang and Wei, 2008 Regional focus: WTO-JETRO (2011); Wang, Powers, and Wei (2009) Global : Johnson and Noguera, 2012; Foster-McGregor and Stehrer, 2013; Johnson, 2014; Koopman et al., 2014; Los et al., 2014

4 Introduction (III) In this paper: We computes the existing gap between bilateral trade in value added (VA) and gross value terms We derive the distribution of VA trade by regions involved in the EU production chain for 10 composite economic sectors Main Results: VA to gross export (VAX) ratio differs substantially across regions and sectors, in line with previous studies (Johnson and Noguera, 2012; Foster-McGregor and Stehrer, 2013; Johnson, 2014; Koopman et al., 2014; Los et al., 2014) Production sharing relationships are more marked in core rather than peripheral EU regions Similarly to Johnson and Noguera (2012) we find Lower VAX ratios in manufacturing sectors in contrast to higher vax ratios found in primary and service sectors

5 DATA (I) We use a novel dataset of global input-output matrices that includes full bilateral trade flows between 267 EU NUTS2 regions and the ROW bilateral trade in intermediate and final demand goods are fully disaggregated Distinctive characteristic of this dataset in comparison to others works (e.g., Johnson and Noguera, 2012) where trade in intermediate and final demand goods are not directly incorporated in the global input-output table Thissen M., T., Husby, O., Ivanova and G., Mandras (2018). Consistent Interregional Trade and Transport flows between European NUTS2 regions. JRC Working Papers series, forthcoming. A B,D,E C F G-I J K L M-N O-Q R-U Sectors: NACE Rev. 2 Agriculture, Forestry and Fishing Mining and Quarrying + Electricity, Gas, Steam and Air Conditioning Supply + Water Supply; Sewerage, Waste Management and Remediation Activities Manufacturing Construction Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles + Transportation and Storage + Accommodation and Food Service Activities Information and Communication Financial and Insurance Activities Real Estate Activities Professional, Scientific and Technical Activities + Administrative and Support Service Activities Public Administration and Defence; Compulsory Social Security + Education + Human Health and Social Work Activities Arts, Entertainment and Recreation + Other Service Activities + Activities of Households As Employers; Undifferentiated Goods- and Services- Producing Activities of Households for Own Use + Activities of Extraterritorial Organisations and Bodies

6 DATABASE (II) A stylised interregional Input Output System SAM region 1: Use region 2: Use region 1: Supply region 2: Supply region 1: Uregion 2: Use sector 1 sector 2 sector 1 sector 2 product 1 product 2 product 1 product 2 hhd - Inve hhd - inve total region1 sector sector region 2 sector sector region 1 product product region 2 product product region 1 value adde 6 3 transfer transfer 9 region 2 value added 4 6 transfer transfer 10 total sectors, 1 and 2, producing 2 types of products International trade (product level) is divided over different types of use Region 1 exports 3 units of product 2 to Region 2 where 2 units are used by sector 2 and 1 unit by the final demand categories.

7 Methodology The input-output framework In an interregional accounting framework, gross output in region r and sector i, y r i, is given by the sum of intermediate and final demand goods. In equilibrium thus we have the following relationship: y r (i) = m r,s (i, j) + f r,s (i) r, s = 1,, R; i, j = 1,, I s j s Where m r,s i, j is the intermediate inputs matrix and f r,s i represents the total final demand goods The VAX ratio (Johnson and Noguera, 2012) is defined as: Where: vax r,s i = c r i y r,s (i) x r,s (i) y r,s is the amount of output produced in the source region r and absorbed in the destination region s c r (i) is the share of VA in total production x r,s (i) is the bilateral trade matrix

8 Methodology (II) The input-output framework Two regions/one sector example The Leontief model (Leontief, 1944 and Miller and Blair, 2009): y = I A 1 f In Matrix terms: And y 11 y 12 y 21 y = I a 11 a a 21 I a 22 1 f 11 f 12 f 21 f 22 y 11 y 12 y 21 y 22 = 1 a 22 1 a 11 f 11 + a 12 f 21 f 21 + a 21 f 11 1 a 22 1 a 11 f 12 + a 12 f 22 f 22 + a 21 f 12 where = 1 a 11 1 a 22 a 12 a 21 > 0 y 12 is given by the sum of two elements: the output of region 1 required to sustain import of final demand in region 2 the output of region 1 required to export intermediate goods to be used for the production of final goods consumed in region 2

9 Methodology (III) The input-output framework Two regions/one sector example Following Johnson and Noguera, (2012) and Koopman et al., (2014), we can express y 12 in terms of the output of region 2 1 step: implicit output transferred from region 1 to region 2 y 12 = 1 a 11 1 f 12 + a 12 y 22 2 step:total exports from region 1 to region 2 are defined as x 12 y 12 = 1 a 11 1 x 12 a 12 y 21 The implicit output is the difference between gross exports and the initial export of intermediates returning back home embedded in import vax 1,2 = c 1y 12 x 12 = c 1 1 a 12y 21 x 12 1 a 11 1

10 VAX ratio Johnson and Noguera, 2012 define the VAX ratio as an indicator OF GVC Koopman et al., 2014 define the VAX ratio as an indicator able to measure the intensity of production sharing The intuitions: Sectoral VAX ratio tends to be smaller when VA returns back at home embodied in the imported intermediate goods The lower VAX ratio the higher the participation/integration in GVC

11 Results and discussion Primary and Energy Manufactures Services Aggregate A-B D-E C F G-I J K_L M_N O_Q R Average EU regions Median EU regions Standard deviation N. Regions within - average+/- one Standard deviation

12 Results and discussion Aggregate Level

13 Results and discussion Manufactures Primary Services

14 Conclusions VA to gross export (VAX) ratio differs substantially across regions and sectors Production sharing relationships are more marked in core rather than peripheral EU regions Lower VAX ratios in manufacturing sectors in contrast to higher vax ratios found in primary and service sectors We portrait novel geographical and sectorial patterns of the VA embedded in gross exports revealing the contribution of EU regions to the global production networks The spatial distribution of vax ratios is far from uniform across regions within the same country.

15 Methodology (II) The input-output framework Two regions/one sector example the equilibrium condition of the Leontief model (Leontief, 1944 and Miller and Blair, 2009): the gross output y = {y rs } has to satisfy the relationships y = I A 1 f where I is the identity matrix, A = a r,s and f = {f rs } In Matrix terms: And y 11 y 12 y 21 y 22 = I a 11 a 12 a 21 I a 22 1 f 11 f 12 f 21 f 22 I a 11 a 12 a 21 I a 22 1 = 1 a 22 a 21 a 12 1 a 11 where = 1 a 11 1 a 22 a 12 a 21 > 0 y 11 y 12 y 21 y 22 = 1 a 22 1 a 11 f 11 + a 12 f 21 f 21 + a 21 f 11 1 a 22 1 a 11 f 12 + a 12 f 22 f 22 + a 21 f 12