From Effective Rate of Protection to Global Value Chains in memory of Dr. Seiji Naya Shigeyuki Abe and Haoliang Zhu Doshisha University SEASIA 2017, Chulalongkorn University 17 December 2017

Seiji Naya and Effective Rate of Protection(AER1969) Dr. Seiji Naya December 20, 1932 August 9, 2016

Effective Rate of Protection Simply Stated Suppose Product A’s international price is $100. Country in question levies 20% tariff on Product A which brings domestic price to $120. Suppose Product A needs Intermediate Product B, $60, and 10% tariff is levied. Value Added in international market is $100-$60=$40. Value Added in domestic market is $120- $66=$54. ERP is, therefore, (54-40)/40=35%.

ERP and GVCs: Common Features ERP and GVCs deal with value added. ERP deals with domestic and international value added difference over international value added. GVCs deals with domestic value added content of the final product. First appearance is different from the reality. ERP is closer to the reality than nominal tariff. GVCs are closer to the reality than traditional balance of payment statistics

Why GVCs? Nominal Balance of Payments statistics is different from the reality. This was revealed by Xing and Detert “How the iPhone Widens the United States Trade Deficit with the People’s Republic of China” ADBI Working Paper No.257, December 2010. OECD pioneered in their study on TiVA(Trade in Value Added), and other GVC indices.

A Case of iPhone iPhoneの生産体系はGVC分業の特徴をよく表しています。ほかの研究によると、中国はiPhoneの最大の生産国と輸出国ですけれども、実際に中国企業は作り上げた付加価値が少ないです。付加価値は貿易から得られた利益を測る指標です。従来な貿易統計だけで、中国は国際貿易における役割をうまく把握できません。付加価値貿易のベースで、中国の貿易現状を把握することは重要な課題になります。 Source: https://www.wsj.com/articles/SB10001424052748704828104576021142902413796

TiVA Database The 2016 edition of the TiVA database provides indicators for 63 economies covering OECD, EU28, G20, most East and South-east Asian economies and a selection of South American countries. 34 unique industrial sectors are represented, including 16 manufacturing and 14 services sectors, as well as related aggregates (such as total manufactures and total services). Indicators are now provided for all years from 1995 to 2011.

Research Questions TiVA and Economic Development (GDP per capita) related? Differences in sectors? Assess the roles of exports, domestic inputs and value-added in explaining the change of domestic value-added by using the structural decomposition analysis (SDA).

Calculation of DVA 𝐷𝑉𝐴= 𝑉(𝐼− 𝐴 𝐷 ) −1 𝐸 =𝑉𝐿 𝐸 𝐷𝑉𝐴= 𝑉(𝐼− 𝐴 𝐷 ) −1 𝐸 =𝑉𝐿 𝐸 V is a row-vector of value-added coefficient 𝐴 𝐷 is a matrix of domestic input coefficient 𝐸 is a diagonal matrix of export value L is local Leontief inverse matrix

Any patterns of DVA share? First, we try DVA shares of Asian countries to see if any patterns exist. From left to right we arrange countries in ascending order of GDP per capita. We find Inverted U pattern in Asia for textile, machinery, computer, electric machinery, and motor vehicle. Seemingly OK!

DVA Share in Total Exports in Asia Textile (2011)

DVA Share in Total Exports in Asia Machinery (2011)

DVA Share in Total Exports in Asia Computer (2011)

DVA Share in Total Exports in Asia Electrical Machinery (2011)

DVA Share in Total Exports in Asia Motor Vehicle(2011)

But no pattern can be found! When data are expanded to cover the world, and four manufacturing industries for the period between 1991 and 2011.

However

Some Observations Case of a small plastic injection factory from Higashi Osaka in Vietnam. Two charts from the Basic Survey of Overseas Business Activities (METI, 2010)

Can we verify this trend?

Another Inverted U ? Polynominal regression is tried to see if inverted U relations exist between DVA share and development only for Asian countries. Why? Stage 1 Developing countries need to introduce FDIs to engage in GVCs production. Stage 2 Both FDI companies and local companies try to localize intermediate production. Thus, the curve moves up (higher DVA share). Stage 3 When countries sufficiently develop, they try to locate production sites to developing countries. Thus, the curve moves down (lower DVA share).

DVD Share and GDP per capita: Asia

Decomposition of DVA Change Structural Decomposition Analysis (SDA) Miller Ronald. E. and Peter D. Blair (2009). Input-Output Analysis: Foundations and Extensions. Cambridge University Press. p606

Decomposition of Manufacturing DVA Change Thailand

Decomposition of Manufacturing DVA Change Other Asian Countries

What Seiji might say….. Many Mahalos, Seiji! Yuki, your message is clear but this is neither an analysis nor a theory. You describe what you find by arranging data only. You need to go one step further. You need to clarify the logic more in depth. And you should answer why questions and verify. He once commented on my thesis that the logic part is a black box. Hope I have done a little better than what I did in the 1970s. But….I feel like punched out! It may take some more time for me to satisfy Seiji although I am going to be 70 in 20 days and to retire in 3 months. Many Mahalos, Seiji!

Thank you!