Countries and Sectors in Global Value Chains

Production of goods and services has increasingly globalized since the 1970s, but how to measure this phenomenon is still the object of academic debate. The concepts of backward and forward global value chain participation, which quantify the extent to which countries are exposed to foreign supply and demand shocks, are likely to be mismeasured. Furthermore, the customary practice in the literature of quantifying global value chain participation as a proportion of gross trade flows leads to neglect of some important features of global value chain participation. This paper proposes a novel, comprehensive way to measure global value chain participation using inter-country input-output linkages in trade and output. The analysis finds that measuring global value chain participation as relative to trade flows leads to a considerable underestimation of the involvement in global value chain activity by some industries—especially services—and countries. Moreover, the paper shows that the standard way of measuring participation, which distinguishes between backward and forward linkages, leads to overstating backward integration. This in turn is the sole source of a false empirical regularity, whereby countries and the global economy are viewed as systematically more integrated backward than forward. If this were true, it would be expected that the global economy would be structurally more exposed to supply shocks than demand shocks. Instead, the analysis finds that activities that are both integrated backward and forward represent the most sizable share of global value chain–related production.