Overview of Global Value Chains and GVC Participation

International trade and production are increasingly structured around global value chains (GVC). Value chains can be defined as the totality of activities involved in the production process, which includes the design, manufacture, marketing and distribution of the product, as well as the provision of after-sales support for consumers. These different activities in the value chain can be carried out by the same or different companies. With more countries involved in these different stages, value chains have become global.

A country’s exports can be differentiated by whether these goods and services are produced with domestically sourced inputs or imported (foreign) value-added inputs (Figure 1). Furthermore, these exports can head to a foreign market either for final consumption or be used as intermediate manufacturing inputs in products that will then be exported to a third country (or the original country). A GVC analysis typically considers both the foreign value-added in a country’s exports (the upstream perspective) as well as the country’s exported value-added that were incorporated in other third-country exports (the downstream perspective).

To determine a country’s level of involvement in the GVC, the United Nations Conference on Trade and Development (UNCTAD) has developed a methodology based on three indicators. The first indicator measures the share of foreign value-added in exports. This reflects the portion of imported inputs used in a country’s exports and that is not included in its gross domestic product (GDP). The second indicator measures the domestic value-added in exports, or the proportion of domestically produced inputs in a country’s exports. This is the share of a country’s exports that contributes to GDP (i.e., domestic value-added trade share). The third indicator, the indirect value-added (DVX), measures the portion of a country’s exports that is involved in a multi-stage trade process, which can be calculated by adding the foreign value-added used in a country’s own exports and the value-added supplied to other countries’ exports.

The participation rate is a useful indicator showing the extent to which a country’s exports are integrated into international production networks, both upstream and downstream. Moreover, measuring a country’s GVC participation rate as a share of its exports will reveal how much the country relies on the GVC.