GVC map

A new phenomenon in the empirical trade and policy literature is global value chains. Trade patterns today are radically different from what we used to see. New technology has introduced novel opportunities for how we trade whilst new business practices have sophisticated the management and fragmentation of production, leading to the rise of global supply chains, or more recently called global value chains (GVCs).

GVCs provide a complete new paradigm through which trade and trade policy can be analyzed. Typically trade is thought of as a final product traveling from one country to another where the good is consumed. Although this still holds true for some products, in many sectors this is not the case anymore: input goods cross borders many times before they become a final good. Hence, an ever refinement of trade patterns in 'slices' of the value chain is observable.

But where do countries stand regarding the space of GVCs?

Two indicators have been recently put forward which can give us more insight. For one, there is the participation index (horizontal axis) measuring the extent to which countries take deeper part in the value chain by trading many inputs wither through imports or exports. Greater participation on this index creates greater scope of reaping a higher share of domestic value-added embodied in exports. Second, a country's location within GVCs can be given by a distance-from-final-demand measure (vertical axis). The further away from final demand the more a country is involved in producing a good that still needs to undertake many production stages.

So, where is your country placed? Have a look! The sizes of each circle indicates the size of a country's market.