Tracing Value Added in the Presence of Foreign Direct Investment

We develop a unified framework to trace value added along global supply chains in the presence of foreign direct investment by decomposing either GDP based on forward linkages or final production based on backward linkages. The new framework accounts for the presence of foreign invested enterprises (FIEs), their interactions with local firms in the host countries as well as their activities in international trade. The size of the GVC activities identified with this framework roughly doubles that in the previous literature that treats FIEs the same as local firms. The “missing GVC activities” are more serious for high-tech sectors than for those with a lower R&D intensity, and more serious for high-income economies than for middle-income economies.