Session 2A: Jonathan Timmis

1. The Relationship between
GVCs and Productivity
Jonathan Timmis
OECD Directorate for Science, Technology and Innovation
jonathan.timmis@oecd.org
2016 GFP Conference, Lisbon, 7-8 July 2016

2. • GVC participation is increasing over time
...and presents a different picture to final goods trade
GVCs - key feature of the world
economy

3. • Existing globalisation & productivity research is mainly
based on final goods trade
• We know far less about effects of GVCs.
• GVCs are much broader than just importing or exporting
or offshoring
– GVCs encompass the whole value chain
– Including the whole supply chain network (including suppliers of
suppliers etc.) and the network of domestic and foreign buyers
• Therefore policy lessons drawn from final goods may not
be universally applicable to GVCs.
...which presents a policy challenge

4. • Services are the majority of value-added in OECD exports
…but, non-frontier services firms have had sluggish productivity growth
Services are key to GVCs

5. • MNEs coordinate many GVCs and are at the global productivity
frontier
….generating the potential for spillovers along the value chain
• Direct participation in GVCs requires scale
– Productive investments needed in skills, processes, products and
technologies
….which can be a challenge for SMEs
• Indirect participation of SMEs (e.g. as domestic suppliers of
exporters) highlighted by trade in value-added
– But (some) scale issues persist for indirect participation
….see later National Bank of Belgium presentation!
Scale is important

6. • GVC participation = importing inputs to produce exports, or,
exporting inputs for use in 3rd country exports
….variety & quality of (goods, services, intangible) inputs can
increase productivity along the value chain
Trade in Inputs at the heart of GVCs
Source: Meng & Miroudot (2011), Australian Government
DFAT (2013), Smith (2012) and rolls-royce.com
Wing, Edges, Nacelles
Engines
Software, Electrics & Navigation
Wing Tips
Vertical Stabiliser
Horizontal Stabiliser
Rear Fuselage
Passenger Doors
Landing gear
Centre & Forward Fuselage
Cargo Doors
Wing Fairing
Centre Wing Box
Rolls-Royce Engine
More than 75 Suppliers, including….
Fan BladesRear Fan Case
Engine Control System, Gearbox
Low Pressure Turbine
Research Centres
Compressor, Combustor
Assembly

7. • Shifting geography of production
– Outside of traditional production locations (in North America & Europe)
– Emergence of key central hubs (e.g. China within Factory Asia), satellite
suppliers (e.g. Vietnam) or peripheralisation
…..changing GVC centrality may affect productivity growth
GVCs as regional supply chains

8. • GVC centrality (key hub vs peripheral) & embeddedness
affects vulnerability to shocks (OECD, 2013a)
GVCs affect resilience to shocks
Source: Boehm et al. (2015)
Tohoku earthquake
(March 2011)

9. • Trade Policy
– GVCs amplify productivity gains to removing trade barriers
…and highlight interdependence of barriers -> regional agreements
• Non-Tariff Barriers
– Trade barriers go beyond tariffs…..e.g. cost of diverse standards
• Competitive Domestic Markets
– Competitive domestic service sector is key to benefitting from GVCs
• SME Participation
– Addressing barriers to upscaling…e.g. resource reallocation, credit
• Innovation Policy
– Innovation extends beyond R&D.…e.g. re-organising production,
new & complex products, new higher value-added activities
Some implications for policy

10. • GVCs generate both winners and losers
– Key hubs vs peripheralisation in regional production
Next Steps….
Source: Cerina et al. (2015)
20111995

11. • Forthcoming research at OECD:
– How does GVC centrality (becoming a key hub vs
satellite vs peripheral) affect firm productivity?
• Which firms / sectors gain and lose?
• And through what channels?
– How resilient is productivity to supply chain / demand
shocks in 3rd countries?
– What is the role for policy in shaping these
productivity effects?
Next Steps….

12. Thank you!
jonathan.timmis@oecd.org