GVC Positioning

  • A typical
    Global Value ChainThe production of a single commodity or service can be split into many small parts (this is referred to as fragmentation). When these small parts are performed by separate production locations and/or firms, the production process takes the form of a value chain, with many parties contributing value. When this chain is dispersed over various geographical locations, we speak of a global value chain (GVCs).
      (GVC) comprises various activities, including the provision of services inputs (e.g., R&D), raw materials, parts and components, semi-finished goods and final goods for consumption or investment.
  • All contributing economies/sectors within a GVC capture some part of the total value produced by the chain.
  • How much value an economy/sector is able to capture has large developmental impacts. For example, final assembly is often considered to capture relatively little value. The opposite is the case of research and development.

Forward linkages within GVCs

  • Forward LinkagesMany different sectors in different economies contribute value to a single GVC. Forward linkages are the contributions of a specific sector in a specific economy to other value chains (both domestic and foreign). Example: the Australian mining sector contributes (through many indirect linkages) to output of the German transport sector and the Vietnamese construction industry value chains.
    capture the extent to which an economy/sector contributes inputs to other value chains, through the supply of raw materials, intermediate inputs and services inputs.
  • The forward contribution can be either to value chains within the domestic economy, or value chains in foreign economies.
  • Using the ADB input-output tables, forward linkages are calculated as the share of value-added produced by an economy/sector that is contributed to other value chains. The forward integration indicators provided are:
    • The share of value added contributed to own sector.
    • The share of value added contributed to foreign value chains.
    • The share of value added contributed to (other than own) domestic value chains.
    • Specialization indicators for forward gross trade and value added trade are also calculated from the ADB input-output tables.

Backward linkages within GVCs

  • Backward LinkagesMany different sectors in different economies contribute value to a single GVC. Backward linkages are the contributions that the value chain of a specific sector in a specific economy receives from other sectors (both domestic and foreign). Example: the German transport sector value chain uses inputs from the Chinese steel industry and the Dutch electronic chips industry.
    capture the extent to which a value chain (of an economy/sector) uses inputs from other economy/sectors, in the form of raw materials, intermediate inputs and services inputs.
  • High backward integration can be interpreted as a weakness or as a strength. It is a weakness if the value chain is critically dependent on imported intermediates. It shows a strength if the value chain has been successful in economizing production costs by outsourcing various intermediate requirements.
  • Using the ADB input-output tables, backward linkages are calculated as the share of different contributors to the total value of the chain. The backward integration indicators provided are:
    • The share of own sector contributions in the total value generated by the chain.
    • The share of foreign contributors in the total value generated by the chain.
    • The share of (other) domestic sectors in the total value generated by the chain.
    • Specialization indicators for backward gross trade and value added trade are also calculated from the ADB input-output tables

Combining information on the extent of forward and backward linkages within a GVC allows for the identification of the positioning of an economy (or sector) within GVCs

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