This document summarizes João Amador's presentation on global value chains (GVCs) and productivity at the 2016 OECD Productivity Forum. The presentation covered three key topics: 1) The diverse landscape of international traders, with some firms participating in GVCs being more productive than others. 2) Transaction costs between firms, both domestically and globally, and how reducing these can increase productivity. 3) A network approach to analyzing trade in value added, which shows increasing connectivity and centralization of certain countries in GVCs over time. The role of policy is to further reduce barriers, manage risks, and promote flexibility to maximize the productivity benefits of GVCs.

1. João Amador
OECD Productivity Forum
Lisbon 7-8 July 2016
GVCs and Productivity: Issues and
the Role of Policy
The Landscape of International Traders,
Transaction Costs and Networks of Value
Added Trade

2. 2 •
Outline
I. The landscape of international traders
II. Transaction costs between firms
III. Networks of value added trade
OECD Productivity ForumJuly 2016

3. 3 •
The landscape of international traders
Four facts…
• Biggest exporters take a disproportionate share of total
exports
• The landscape of international traders is diverse
• Exporters are more productive than non-exporters and
those in GVCs are even more productive
Correlation vs causality (self-selection; learning by exporting)
• GVCs became the paradigm for the organization of world
production and they are intrinsically complex
July 2016 OECD Productivity Forum

4. 4 •
The landscape of international traders
Biggest exporters of goods and services represent a much smaller share of
exports of domestic value added
July 2016 OECD Productivity Forum
Assumption: intermediate costs (exc. cost of capital) proportionally distributed along exports
and domestic sales.
(all exporters)

5. 5 •
X G X G X G M S
M G M S M G
Exporter GS X S
X S X S X S X G
M G M S M S
M G
Simple S exporter Two-way S trader
X S X S X S X S
M G M S M S
M G
Simple G exporter Two-way G trader
X G X G X G X G
Minor trader
Simple G importer Simple S importer Importer GS
M G M S M S
M G
The landscape of international traders is very diverse, part of them take
part in GVCs
The landscape of international traders
July 2016 OECD Productivity Forum
i= X – Exports; M – Imports; j= G – Goods; S – Services
Threshold by firm - Share i,j > 10% of turnover
GVCs
Four-way trader

6. 6 •
The landscape of international traders
Each type of trader has different relevance in terms of total trade
July 2016 OECD Productivity Forum
Number top – share of total trade, bottom – share of total traders
2,6
46,4
Minor trader
0,8 0,2
1,7
5,1
0,8 0,6
17,9 2,0 0,3
0,8
0,8
9,6 5,6 0,3 0,3
Simple G importer Simple S importer Importer GS
18,5
Simple G exporter Two-way G trader X G, MS
7,8 43,4
X G, M S, M G
12,5
0,7
2,3 0,1
Simple S exporter Two-way S trader X S, M S, M G
3,6
X S, MG
12,5
0,7 0,4 0,1 0,1
Exporter GS X S, X G, M S, M G
0,4
X S, X G, M G X S, X G, M S
0,5
i= X – Exports; M – Imports; j= G – Goods; S – Services
Threshold by firm - Share i,j > 10% of turnover

7. 7 •
The landscape of international traders
Each type of trader shows different productivity
July 2016 OECD Productivity Forum
Apparent median labour productivity relatively to median traders productivity
0,94 0,89 0,95 0,69
Minor trader Simple G importer Simple S importer Importer GS
0,98 1,30 1,07 1,04
Simple G exporter Two-way G trader X G, MS X G, M S, M G
1,26 1,29 1,59 1,16
Simple S exporter X S, MG Two-way S trader X S, M S, M G
1,22 1,32 1,33 1,51
Exporter GS X S, X G, M G X S, X G, M S X S, X G, M S, M G
i= X – Exports; M – Imports; j= G – Goods; S – Services
Threshold by firm - Share i,j > 10% of turnover

8. 8 •
Transaction costs between firms
There are both global and domestic value chains
• The mechanisms that drive higher productivity in exporting firms should
also operate domestically (literature on the boundaries of the firm)
• … therefore, it is important to reduce the transaction costs between firms
in the economy
• The framework costs play a role (e.g. judicial, licencing)
• … therefore, the structural reform agenda proves its relevance
• The performance of the services sector (becoming more and more
tradable) is important, notably to supply intermediation and risk
management services
July 2016 OECD Productivity Forum

9. 9 •
Transaction costs between firms
An example: Management of the supply chain
• With GVCs the need to follow best practices in global supply chain
management has intensified
• Buying organizations are becoming increasingly accountable for what
goes on in their supply chain (certification, reputation costs)
… this burden weighs heavily on firms
• Specific services offer access to the information needed to support the
decision-making process and effectively manage the supply chain risk
… lower procurement costs and lower risk (more competition)
July 2016 OECD Productivity Forum

10. 10 •
A network approach to aggregate trade in value added
Network analysis
• GVCs are intrinsically complex because there are multiple relations
between value added users and suppliers in GVCs, thus, network theory
offers the right set of tools for analysis.
• Network graphs highlight relevant features of complex data, notably, the
main users and suppliers of value added in GVCs and their
interconnections.
• These tools include node level measures and aggregate measures that
describe the topological properties of the network.
July 2016 OECD Productivity Forum

11. 11 •
A network approach to aggregate trade in value added
Setting-up the network (Amador & Cabral, 2016)
• Nodes (40 countries in the WIOD database) , period 1995-2011, 35 sectors
• Unweighted (binary) network.
• The criterion for the existence of an edge is defined to reflect the importance of a
source country s as a supplier of value added for the production of the exports of
country r.
• A foreign value added threshold is set at 1 percent of total gross exports of the user
country. The existence of a clear interpretation for the orientation of the edge
makes this network directed. More precisely:
where AM=[𝑎 𝑠𝑟] is the N *N connectivity or adjacency matrix.
July 2016 OECD Productivity Forum
asr =
1 if
FVAiXsr
Xr
> 0.01 for each country s ≠ r = 1 … N
0 Otherwise

12. 12 •
1995
July 2016 OECD Productivity Forum
A network approach to aggregate trade in value added
The size of each node
is proportional to its
total degree and the
color of the node is
mapped to its
indegree, with darker
shades indicating
higher values.

13. 13 • July 2016
2011
OECD Productivity Forum
A network approach to aggregate trade in value added
The size of each node
is proportional to its
total degree and the
color of the node is
mapped to its
indegree, with darker
shades indicating
higher values.

14. 14 • OECD Productivity ForumJuly 2016
Goods to goods Goods to services
Services to goods Services to services
2011
A network approach to aggregate trade in value added

15. 15 •
0102030405060708090
1995 1997 1999 2001 2003 2005 2007 2009 2011
Goods inputs to goods exports Goods inputs to services exports
Services inputs to goods exports Services inputs to services exports
OECD Productivity ForumJuly 2016
0
10
20
30
40
50
60
70
80
90
1995 1997 1999 2001 2003 2005 2007 2009 2011
0
10
20
30
40
50
60
70
80
90
1995 1997 1999 2001 2003 2005 2007 2009 2011
0
10
20
30
40
50
60
70
80
90
1995 1997 1999 2001 2003 2005 2007 2009 2011
0
10
20
30
40
50
60
70
80
90
1995 1997 1999 2001 2003 2005 2007 2009 2011
US
China Russia
Germany
A network approach to aggregate trade in value added
Main four suppliers over time – goods and services

16. 16 •
0,55
0,60
0,65
0,70
0,75
1995 1997 1999 2001 2003 2005 2007 2009 2011
Total Goods Services
0
4
8
12
16
1995 1997 1999 2001 2003 2005 2007 2009 2011
Total Goods Services
OECD Productivity ForumJuly 2016
Average degree
China
Russia
Centralization of
eigenvector centrality
0,0
0,1
0,2
0,3
0,4
0,5
0,6
1995 1997 1999 2001 2003 2005 2007 2009 2011
Total Goods Services
-0,5
-0,4
-0,3
-0,2
-0,1
0,0
1995 1997 1999 2001 2003 2005 2007 2009 2011
Total Goods Services
Degree assortativity
Global clustering
coefficient
A network approach to aggregate trade in value added

17. 17 •
The role of policy
There are several related policy issues
• Reduce barriers on transactions between firms. These are related
with framework costs and the performance of the services sectors
• EU services directive
• Structural reform agenda
• The interdependencies between economies are large and shocks
propagate
• Identify hubs in GVCs and their sectoral patterns
• Manage risk and assess propagation of shocks
• Promote flexibility in the productive structure and the key role of
human capital
OECD Productivity ForumJuly 2016

18. 18 •
Thank you
July 2016 OECD Productivity Forum