1st ICAI 2020

International Conference on Automotive Industry 2020

Mladá Boleslav, Czech Republic

Since 2011, the foreign value-added content of exports (backward linkages) has been gradually falling for many economies, particularly China. This is related to an increase in domestic sourcing of intermediate inputs. There are several reasons for that, such as trade tension or technological changes, though fluctuations in commodity prices (e.g. crude oil) can also have an impact. After the financial crises, we have seen a backlash against globalization and views challenging the merits of free trade (Rodrik, 2018). Services play an essential role in GVCs. Although based on traditional trade data, services account just for around 20% of world trade, services are also incorporated into goods. Services value added accounts for between 25% and 40% of the content of manufacturing exports in most OECD and countries (OECD, 2018). For several countries, the foreign share of services value added is higher than the domestic share signifying that services play an important role in the integration of the manufacturing sector in GVCs. Apart from GVC participation, in the first version of TiVA also other more complex indicators were introduced, such as the length of GVCs and distance to the end consumers’ demand. Yet, these indicators were missing in later versions, probably reflecting the low reliability of these indicators. These datasets have several disadvantages. The major one being the fact that they are based on econometric modeling; thus, the quality of the model and underlying data are crucial. We can see constant improvement of datasets; the OECD-WTO has recently introduced the third release of TiVA. At the same time, the new releases show the inadequacies of the previous ones. The main problem of these datasets, in general, is the lack of sectors, countries, and years covered. Other more specific issues relate to the production and proportionality assumptions that are used for the construction of TiVA database. Based on the production assumption, it is assumed that for a given industry, all firms allocated to that industry use the same goods and services to produce the same outputs. According to the proportionality assumption, the share of intermediate imports of products consumed directly, and those destined for export, is the same (OECD, 2018). Since firms use different inputs for products sold on domestic and for exports, this may lead to a downward bias for the share of foreign content. Further problems are related to the confidential trade, re-exports other than from Hong Kong, identifying second- hand capital goods, and many others. WIOD database derives import shares for three end-use categories (inter-mediate use, final consumption, and investment), and thus proportionality assumption should not be a problem (Timmer et al., 2015). 3. Analysis Global value chains framework is used to assess who benefits from trade, and the contribution of trade to countries’ value added, income, and employment. Activities located at the beginning and end of the value chain are, in general, those with the highest value added. Firms, regions, and even countries strive to improve their position within the GVCs, and in this way, they affect the value that is produced, created, and retained. This process is called upgrading (Gereffi, 1999). The automotive sector, together with electronics and textiles and apparel, belongs to the three of the most “globally integrated” sectors. For the automotive industry, an organization through hierarchical structures is typical. There is thus a high degree of

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