Characterizing Global Value Chains

Transcription

1 Chaacezg Global ale Cha Zh Wag Uey of Ieaoal e ad Ecoomc & Geoge ao Uey Shag-J We, a Deelopme ba Xdg ad Kf Zh, Uey of Ieaoal e ad Ecoomc, Cha (Daf fo comme) Th eo: pl 15, 2016 bac Sce he exe of offhog ad podco hag ae by eco ad coy, we deelop meae of GC em of legh, ey, ad podco le poo of pacpao a he coy-eco, ad blaeal-eco leel, ad dgh amog pe domec, decly aded, ad decly aded podco ace. Ug hee meae, we chaaceze co-coy podco hag pae ad GC elaed ade ace fo 35 eco ad 40 coe oe 17 yea. We fd ha he podco cha fo he wold a a whole ha become loge. Whle he elae ag of he legh a he eco leel able aco coe, he aeage legh fo a ge coy-eco, of boh he domec ad eaoal compoe, ad he pacpao ad poo GC geeal, do eole gfcaly oe me. The el cobe o a bee deadg of Chaace of global ale cha ad pae of pacpao by ddal coy-eco. Key Wod: Podco legh, Poo ad Pacpao Global ale Cha JE Nmbe: F1, F6 The ew he pape ae hoe of he aho ad do o ecealy eflec he ew ad polce of he a Deelopme a o oad of Goeo o he goeme hey epee, o ay ohe ogazao ha he aho ae afflaed wh. Zh Wag acowledge he eeach ad facal ppo by Safod Cee fo Ieaoal Deelopme whe he wa g hee Spg

2 1. Iodco The emegece of global ale cha (GC) ha chaged he pae of eaoal ade ece decade. Dffee age of podco ow ae ofe codced by mlple podce locaed eeal coe, wh pa ad compoe cog aoal bode mlple me. Whle he defcecy (.e., de o ade emedae) of offcal ade ac a a decpo of e ade pae ha bee well ecogzed, meae of global ale cha baed o eqeal podco ae ll de deelopme. ale cha epee ale added a ao age of podco, whch fom he al phae ch a R&D ad deg o he deley of he fal podc o come. ale cha ca be aoal f all age of podco occ wh a coy, o global f dffee age ae place dffee coe. I pacce, mo podc o ece ae podced by a global ale cha. Podco legh, a a bac meae of GC, defed a he mbe of age a ale cha, eflecg he complexy of he podco poce. a e al. (2012) belee ha ch a meae of elae podco-le poo f ad foemo he qaae dcao eceay o ae pecalzao pae of coe elaely peam e doweam age of global podco pocee. The peame ad doweame dexe dced ece leae (ee alo lle ad Temhoe, 2015) ae mecal emae baed o podco legh o meae a eco/coy poo a global podco poce. Fally (2012) popoe wo meae, dace o fal demad,.e., he aeage mbe of age bewee podco ad fal compo, ad he aeage mbe of podco age emboded each podc o qafy he legh of podco cha. The f meae, alo efeed o a peame he leae fhe decbed a e al. (2012); he ecod meae, alo efeed o a doweame he leae fhe exploed a ad Cho (2013). Howee, hee ae wo commo cocepal caea fo hee meae dced peo leae: f, hey all a fom a eco go op, whch clde o oly fal good ad ece, b alo emedae p. aged by E (2005, 2007), a podco cha m a fom he eco pmay p (o ale added) ch a labo ad capal, o 2

3 go op. 1 Secod, ce peame ad doweame meae do o mply each ohe, ad may dcae coe podco le poo fo he ame coy/dy pa. Theefoe, h pape we defe podco legh a he dace fom pmay p o fal podc. We how ha dexe bl o ch defo ae moe coe ad wh bee ecoomc epeao. We demoae ha he aeage podco legh of ay ale cha alway eqal he ao of he poo of go op ad he coepodg ale-added ha dce he op. o mpoaly, baed o he go ade accog famewo popoed by Koopma, Wag, ad We (o be beqely ced a KWW, 2014) ad Wag, We, ad Zh (o be beqely ced a WWZ, 2013), we fhe pl he oal podco legh o a pe domec egme, a egme elaed o dec ale-added ade, ad a egme elaed o GC ha eflec deepe co coy podco hag ace. Th allow o defe he GC podco legh moe clealy fo he f me he leae. We how ha hee a cocepal dffeece bewee podco legh meae ad podco le poo meae. Oce we defe he podco legh by egme a he blaeal ad eco leel, dexe epeeg a coy-eco poo o a GC ca be ealy coced a ao leel of daggegao. Wh h, we ca gage whehe a coy o a dy lely o be locaed he peam o doweam pa of a pacla global ale cha. We alo modfy he global ale cha pacpao dex defed by Koopma e al. (2010), edefg boh he fowad ad bacwad dal lage baed pacpao dexe by codeg o oly expo podco b alo podco ha afe domec fal demad hogh eaoal ade. We apply hee ew meae o he ecely aalable Ie Coy Ip Op (ICIO) daabae ad oba ome eeg el. We how ha Fally el o he legheg of podco cha o globally epeeae. oe pecely, h ma empcal el ha he podco cha ha become hoe, ad h ma hypohe ha ale-added ha gadally hfed owad he doweam age, cloe o he fal come, ae boh qe o he US p-op able. We oe h el wh o ewly defed GC podco legh dex 1 I mpoa o bea md ha go op ae edogeo aable, whle pmay p ad fal demad ae exogeo aable he adad eoef model. Coeg go op (go expo ae pa of ) o fal demad he ey echcal ep o eablhg he go ade accog famewo boh Koopma, Wag, ad We (2014) ad Wag, We, ad Zh (2013). 3

4 ad global ICIO daabae. F, we how ha emegg ecoome le Cha hae a gadal legheg of he oeall podco cha ad he legheg of podco by hee coe domae hoeg of podco by ohe, o ha he wold a a whole expeece a legheg of he podco poce. Secod, we decompoe chage oal podco legh o chage he pe domec egme, chage he egme elaed o dec ale-added ade, ad chage he egme elaed o global ale cha. y fhe epaag he podco legh of GC o domec ad eaoal egme, we how ha he ao of eaoal podco legh e oal podco legh of GC ha ceaed fo all coe. Thd, we how ha all coe he wold ceaed he GC pacpao dg d fally, we e he hee ype of ewly defed GC dexe a explaaoy aable o aalyze he ole GC hae played amg ecoomc hoc he ece global facal c ad fd ha a coy/eco GC poo ha gfca mpac. The fhe he coy/eco pa locaed fom he fal compo ed, he lee he mpac of he global ecoomc hoc. I addo, he mpac of he facal c ceae wh he legh of he eaoal poo of he elea global ale cha. KWW ad WWZ hae peeed a complee go ade accog famewo a he coy, blaeal, eco, ad blaeal-eco leel. Whle he accog exece codced he wo pape pode efl ew meae of podco hag ad co bode ade, he deema ad coeqece of podco hag ad hee doble coed compoe ae o addeed. To mae he decompoo efl fo ecoomc aaly, a mpoa f ep o coc ao dexe ha ca meae a coy/dy poo ad pacpao GC ad yemcally ag all coy/dy pa aalable ICIO daabae ad ecoomecally dyg he deemae of hee dexe oe me a gded by ecoomc heoy. The GC podco legh, poo ad pacpao dexe defed h pape ae pa of o effo h deco. The e of he pape ogazed a follow: Seco 2 fomally defe he GC podco legh, poo ad pacpao dexe; Seco 3 epo majo empcal el baed o WIOD; ad Seco 4 exploe he mplcao of o fdg ad coclde. 2. egh of Podco Cha ad GC Poo ad Pacpao Idexe 4

5 2.1 The legh of podco cha a cloed ecoomy e f defe he podco legh meae a N-eco cloed ecoomy. Table 1 Ip-Op able a cloed ecoomy Iemedae Ue Fal e Op Toal (Compo ad Ip 1, 2,, Op Capal Fomao) 1 N Iemedae 2 Ip Z X ale-added a Toal p X whee X deoe he go op eco, deoe he fal good eco, Z deoe he emedae good flow max, a deoe he ale added eco, ad deoe max apoe opeao. I he eoef model (eoef, 1936), he p coeffce max ca be defed a = ZX 1, whee X deoe a dagoal max wh he op eco X dagoal. The ale added coeffce eco ca be defed a = ax 1. Fom he op de, go op ca be pl o emedae good ad fal good, X + = X. Reaagg em, we ca each he clacal eoef eqao, X =, whee = (I ) 1 he well-ow eoef ee max. The ale added ad fal podc ae led by he followg eqao: a = X =. I obo ha pmay p (ale added) of eco oly ca be decly emboded fal podc of eco j f eco ad eco j ae he ame. Theefoe, he f age of ay podco poce, he ale added of eco emboded fal podc of eco j ca be qafed a δ j y j, whee δ j a dmmy aable. If ad j ae he ame, δ j eqal 1, ohewe eqal 0. h age, he legh of he podco cha 1. 5

6 I he ecod age, he ale added of eco decly emboded go op ha ed a emedae o podce fal podc of eco j ca be meaed a a j y j, whch he ale added of eco he f od dec ale-added emboded fal podc of eco j. Up o h age, he legh of he podco cha 2. The dec ale added fom eco ca be emboded emedae good fom ay eco. I he hd age, he ale added of eco decly emboded go op ha ed a emedae all eco o podce he go op whch ae ed a emedae o podce fal good of eco j ca be meaed a a a j y j. Th he ecod od dec ale-added fom eco emboded emedae good ad abobed by fal good of eco j. h age, he legh of he podco cha 3. The ame goe fo he cceedg age. Geealzg he aboe poce o clde all od of ale-added eco decly ad decly emboded fal good of eco j, we oba he followg: 1, j j y j aj y j aaj y j... j (1) 0, j Expeg (1) max oao = (I ) = (I ) 1 = (2) The eleme of ow ad colm j he max a he gh de of eqao (2), b j y j, he oal ale added of eco emboded he fal good of eco j. Ug he legh of each age a wegh ad mmg aco all podco age, we oba he followg eqao ha ge he legh of a pacla podco cha (eco o eco j): = (I ) = ( ) = (3) I cape he foop of eco ale added each podco age. The eleme of ow ad colm j he max a he gh de of eqao (3) b b j y j. Ddg by b j y j, he aeage legh of ale added fom eco emboded he fal good of eco j ca be comped a: 6

7 yl j b b j b y j j y j b b j b j 1 ( bj ) bbj (4) Reaagg eqao (4) ge: yl j * bj bbj (5) Deog ={yl j }x a he max of podco legh fom ale added o fal good, eqao (5) ca be expeed max oao a # = (6) whee # a eleme-we max mlplcao opeao, 2 a by max of podco legh. The dealed deao ge ppedx. ggegag eqao (4) oe all podc j, we oba he oal podco legh of ale added geeaed eco,.e., he podco legh meae baed o fowad dal lage : l x j 1 j b j b b b y j j y y j x b b j 1 b j b x j b b b j y y j (7) whee b y x ad bj y j x j. Expeg max oao ge: = X 1 X = X 1 X (8) whee a 1 N eco wh all eleme eqal o 1. We defe he op coeffce max a H = X 1 Z, ad he fal podc coeffce eco a F = X 1 a Ghoh (1958). Fom he p de, go p ca be pl o emedae p ad ale added, X H + a = X. Reaagg em, we ca each he 2 Fo example, whe a max mlpled by a x1 colm eco, each ow of he max mlpled by he coepodg ow eleme of he eco. 7

8 clacal Ghoh ee eqao, X = ag, whee G = (I H) 1 he Ghoh ee max. The lage bewee ale added ad fal podc ca alo be expeed a: = X F = agf. I eay o dee he lage bewee he p ad op coeffce mace a: X 1 X = X 1 Z = H. Smlaly, he lage bewee he eoef ee ad he Ghoh ee mace ae: X 1 X = X 1 (I ) 1 X = [X 1 (I )X ] 1 = (1 X 1 X ) 1 = (1 H) 1 = G (9) aed o eqao (9), we ca fhe mplfy fom (8) a = X 1 X = X 1 X = G (10) I he m alog he ow of he Ghoh ee max, whch eqal he oal ale of go op ha ae elaed o oe of ale added ceaed by pmay p fom a pacla eco. Theefoe, eqao (10) meae oal go op dced by oe of ale added a he eco leel, whch ae he foop of each eco ale added he ecoomy a a whole. The loge he podco cha, he geae he mbe of doweam podco age a eco ale added coed he ecoomy. Th mea ha pmay p of he eco ae moe o he peam de of he podco cha. To bee dead h po, le e he dagoal max of ecoal ale added o mlply wh, obag: a = a X 1 X = X = X + X + X + X + (11) I h eleme eqal a l a x 1 b x b x x a x j a j a j x... O he gh de of eqao (11), he f em he ale added decly emboded ow eco op, ad we may ame a he foop of he eco ale added ow eco go op; he ecod em he ale added emboded ow eco go op ed by all eco a emedae o podce op, ad we may ame a he foop of he eco ale added decly ad decly emboded oal go op of h ecod age podco poce. Smmg p all em o he gh had de of (11), we oba foop of eco ale added he whole ecoomy, whch eqal he oal ale of go op ha elae o he eco 8

9 ale added ceaed by pmay p fom a pacla eco. Theefoe, eqao (11) alo ca be we a 3 a = a X 1 X = X = X = X whee X he go op dced by eco ale added. Theefoe, he aeage podco legh of eco baed o fowad dal lage eqal he ao of eco ale added dced oal go op he whole ecoomy ad he eco ale-added. Ug he hae of ecoal ale added GDP a wegh o aggegae eqao (11) oe all eco, we oba: (ax 1 X ) (a) = (X) GDP = (X) GDP (12) whee ax 1 =, X = X ad =. Eqao (12) dcae ha he aeage legh of he podco cha a cloed ecoomy eqal he ao of oal go op o GDP, 4 whch ca be egaded a a fom of complexy of he podco poce he ecoomy,.e., he hghe h ao, he moe complex he ecoomy. ggegag eqao (4) oe ale-added fom all eco ha hae cobed o he fal good ad ece podced by eco j, we oba he podco legh meae baed o bacwad dal lage a: whee b bj bj y j yl j bbj b (13) j bj bj y j b j b 1. Expeg max oao = (14) Th he m alog he colm of he eoef ee max, whch eqal he oal ale of p dced by a of fal podc podced a pacla eco. Theefoe, eqao (13) meae oal emedae p dced by a ale of a pacla fal podc 3 Pleae oe ha X = X ad X = X. They ae he ow ad colm m of he GN by GN max X, epecely. I ow m he go op (aco dffee de he whole ecoomy) dced by a pacla eco ale-added; colm m he go op wh ale-added emboded fom eey eco he ecoomy. Theefoe X doe o eqal X a he eco leel, b eqal each ohe a he aggegae. 4 Th alo ecogzed by Fally (2012). 9

10 hogho all peam eco he ecoomy, whch called he foop of fal good ad ece he leae. The loge he podco cha, he geae he mbe of peam podco age a pacla fal podc coed he ecoomy, he moe o he doweam he podc ae locaed. Ug he ecoal ao of fal good o GDP a wegh o aggegae eqao (13) oe all eco, we oba: ( ) () = () GDP = (X) GDP (15) whch ge he ame go op o GDP ao a eqao (12) ad heefoe ha he ame ecoomc epeao. I woh og ha he legh of a podco cha baed o fowad dal lage a expeed eqao (10) mahemacally eqale o he peame dex defed by Fally (2012a, 2012b, 2013) ad a e al. (2012, 2013); 5 O he ohe had, he legh of a podco cha baed o bacwad dal lage expeed eqao (13) mahemacally eqale o he doweame dex defed by a ad Cho (2013). Howee, hee ae wo oable dffeece. F, mla o lle ad Temhoe (2013), we defe o peam o doweam dexe by he m of he ow/colm of he Ghoh/eoef ee mace epecely, whch ae mple mahemac ad ae pa of he clac p-op leae; Secod, ad mo mpoa, we meae a podco cha legh fom pmay p eco o fal podc of eco j, ag fom pmay p (ale added), o go op (a Fally ad a dd), ad pode ey clea ecoomc epeao fo boh he meao ad deomao he podco le poo dexe dced aboe. 2.2 The legh of podco cha wh ad aco aoal bode e ow expad he cloed-ecoomy model o a ICIO model. The ce wh coe ad N eco decbed by Table 2: 5 The poof poded ppedx. 10

11 Ip Iemedae Ip Op Table 2 Geeal Ie-Coy Ip-Op able Iemedae Ue Fal Demad Toal Op Z Z m Z m 1 1 X m 2 Z Z Z m 2 2 X m1 m2 Z ale-added ( ) 1 Z mm ( 2 ) m1 m2 Z m ( ) mm m X Toal p ( ) X 1 ( X 2 ) m ( X ) whee Z a N N max of emedae p flow ha ae podced coy ad ed coy ; a N 1 eco gg fal podc podced coy ad comed coy ; X alo a N 1 eco gg go op coy ; ad deoe a N 1 eco of dec ale added coy. oh he p coeffce max = ZX 1 ad ale added coeffce eco = ax 1 ca be defed a mla way a dced he cloed ecoomy model Podco ace wh ad who co-coy podco hag aageme The go op podco ad e balace, o he ow balace codo of he ICIO able Table 2 ca be we a: whee X X X X E X E a N N domec p coeffce max of coy (bloc dagoal), * (16) a N N foeg p coeffce max of coy (bloc off dagoal), ad N 1 eco of oal go expo of coy. Reaagg he gh had de of (16) yeld E * G E he X 1 1 * ( I ) ( I ) E (17) Wh a fhe decompoo of go expo o expo of emedae/fal podc ad he fal deao of abopo, ca be how ha 11

12 ( I 1 ) E * ( X ), (18) 6 whee 1 ( I ) he local eoef ee. ae bloc mace he global eoef ee. Ieg (18) o (17) ad pe-mlplyg wh he dec ale-added dagoal max, we ca decompoe ale-added geeaed fom each dy/coy (GDP by dy) o dffee compoe: a X ( ) (1 D _ D) ( ) ( ) (1 D _ D), (3bD _ GC _ RD _ F ) ( (2D _ RT ) (2D _ RT ) ) E (3cD _ GC _ ) (3D _ GC ) (3aD _ GC _ ) X (19) Thee ae fe em h decompoo, each epeeg domec ale-added geeaed by he dy podco o afy dffee egme of he global mae. Thee domec ale-added o oal GDP coy ae geeaed fom he followg hee ype of podco ace: (1) Podco of domecally podced ad comed ale-added ( ). Th domec ale added o afy domec fal demad ha o elaed o eaoal ade, ad o co coy podco hag oled. We label a D_D fo ho. (2) Podco of decly aded ale-added, cldg ale-added emboded boh fal ad emedae good ad ece wh domec faco coe emboded hee expo 6 dealed mahemacal poof of eqao (18) poded ppedx C. 12

13 ha ae decly abobed by adg pae. D coe he bode oly oce, wh o dec expo a hd coe o e-expo oled. We label a D_RT fo ho. 7 (3) Podco of decly aded ale-added. I emboded emedae good ad ece expo ha he oce coy cobed o global ale cha. We label a D_GC fo ho. I meae he amo of domec ale added ha geeaed fom he podco of ch emedae expo egadle of whee hee ale-added ae fally abobed. I ca be fhe pl o hee caegoe accodg o he dffee fal deao of abopo: 3a. Idecly abobed by pae coy. ale-added emboded emedae expo o a hd coy ha ed o podce emedae o fal podc expo ha ae fally comed coy (.e., domec ale added o afy mpog coy fal demad decly, podco hag bewee he wo pae coe, ad, o bewee he mpog coy wh ohe hd coe, o amog,, ad hd coe, D_GC_); 3b. Reed (e-mpoed) o expog coy ad fally comed hee. ale-added emboded emedae expo ha ae ed by pae coy o podce ehe emedae o fal good ad ece ad hpped bac o he oce coy (pobly a hd coe he podco cha) a mpo ad comed hee (.e., domec ale-added o afy domec fal demad ha elaed o eaoal ade, podco hag bewee home ad foeg coe; D_GC_); 3c. Re-expoed o a hd coy ad fally comed hee. ale-added emboded emedae expo ha ed by pae coy o podce emedae p fo ow o ohe coe podco of fal good ad ece ha ae eeally e-expoed o hd coe (.e., domec ale added o afy a hd coy fal demad, podco hag amog a lea hee coe, D_GC_). Sch a doweam decompoo baed o fowad dal lage ccal o deadg he meae of eaoal podco legh o Podco egh of he Global ale Cha (PGC) ha we wll defe h pape. I meae he mbe of podco age he la hee pa of he domec ale-added wold ae o each he fal come a 7 o ad ac (2015) hae ecogzed he dffeece bewee (2) ad (3) ad efe o (2) a Rcada Tade. Howee, ce we dc ale-added ade ad o good ade hee, Rcada ade hold oly be efeed he ee ha h pa of ale-added coe bode oly oce a adoal good ade. They ae o exacly he ame, o aod cofo. 13

14 pacla coy/eco pa, cldg he home coy. Howee, exclde domec aleadded meaed by he f wo em of eqao (19) becae hoe podco ace ae accomplhed ehe compleely wh he aoal bodae o decly abobed by adg pae. Theefoe, hey ca be eaed a pe domec podco ace (he f em eqao (19)) ad podco ace elaed o dec ale-added ade (he ecod em eqao (19)), epecely. Noe ha we e he em GC elaed ade hee aowly o efe o ale added emedae good ha coe bode a lea wce. boade defo of global ale cha ade cold alo clde ay ale added embedded emedae good expo ee f hey co bode oly oce. Ideed, he boade defo of GC hold alo clde ome of he domec ale added expo ha ae embedded he fal good expo abobed aboad a log a he podco of he fal podc ole foeg ale added. Fo h dy, we decde o gop ale added emedae podc expo ha coe bode oly oce a pa of he dec ale-added ade o Rcada Tade he em ed by o ad ac (2015). Wh h, we eee he em GC elaed ade o ade ale added ha coe aoal bode a lea wce. Noe alo ha he mmao he la fo em dcae ha he domec ale-added geeaed by expo podco ca be fhe pl a he blaeal leel o each adg pae mae. The m of em 2, 3a, ad 3c ge he amo of ale-added expo a defed by Joho ad Negaa (2012), whch he oal (dec ad dec) domec ale added o afy foeg fal demad, whle he m of 1 ad 3b he oal domec ale-added o afy domec fal demad. Fally, he m of (2) ad (3) ge he meae domec ale-added (GDP) go expo a defed KWW ad WWZ, o D elaed podco ad ade ace o he mo boadly defed global ale cha. Th fowad-lage baed decompoo alo llaed Fge 1. 14

15 Fge 1 Decompoo of GDP by dy Whch ype of podco ad ade ace belog o global podco ewo? coy/eco oal ale-added (GDP by dy) I podco of fal podc o domec mae decly 1-D_D I podco of dec ale added expo 2-D_RT I podco of GC (dec) ale-added expo 3-D_GC I fal podc expo 2a-D_FIN I emedae decly abobed by dec mpoe 2b-D_INT_RT I emedae decly abobed by dec mpoe 3a.D_GC_ I emedae ha fally e o home coe 3b.D_GC_= RD_F I emedae e-expoed o hd coe 3c.D_GC_ egh of pe domec podco e f code he egme of domec ale added ha geeaed ad abobed by podco ace eely wh he coy a each age of podco. We ow fom eqao (19), a fe podco poce, domec ale added of coy emboded fal podc ha afy domec fal demad eqal D_ D ). ( Followg a mla logc a eqao (3) he cloed ecoomy,.e., g he legh of each podco age a wegh ad mmg p all podco age, we oba a eqao ha ge he podc of he ale-added ad domec podco legh a follow: X _ d (20) ( I ) ( I ) whee I... ( I ) 1 8 dealed mahemacal poof of eqao (20) poded ppedx D. 15

16 ecae podco ace ha geeae h pa of domec ale-added hae o elao wh co bode ade, we defe podco legh a ha of pe domec podco. I eqal he poo of go op of coy geeaed by he podco of he coy GDP who ay co-bode ade ace. Theefoe, he aeage pe domec podco legh of coy eqal he ao of h poo of go op o he coepodg domec ale added, ad ca be expeed a 9 P X _ d D_ d _ D (21) The podco legh of dec ale-added ade 10 e ow code he egme of domec ale added ha geeaed by ace elaed o ade a each age of podco (em (2) ad (3) eqao (19)). I a oe age podco poce, he domec ale added geeaed fom a pacla coy/eco (fo example, eco of coy ) decly emboded fal podc ha ae expoed o coy ad comed hee. I ca be meaed a podco legh eqal 1 ad eaoal podco legh eqal 0. ad domec I a wo age podco poce, he domec ale added geeaed fom coy wll be f emboded go op ha ed a emedae p ehe by coy o ohe coe (hogh expo) he podco of fal podc expo. I ca be meaed a ad ca be decompoed o wo pa: ad. The domec podco legh eqal 2 ad 1, epecely, ad he eaoal podco legh eqal 0 ad 1, epecely. I a hee age podco poce, he domec ale added geeaed fom coy wll be emboded he fal podc podced fom he hd age ad comed all poble deao coe. I ca be meaed a ad ca be decompoed o hee pa:,, ad. The domec podco legh eqal 3, 2, ad 1, epecely, ad he eaoal podco 9 do ymbol below deoe eleme-wde do. 10 dealed mahemacal poof poded ppedx E. 16

17 legh eqal 0, 1, ad 2, epecely. The podc of ale added coy go emedae expo ad domec/eaoal podco legh ca be expeed a 3 2 ad 2, epecely. The ame hold fo a -age podco poce. Smmg oe all podco age a fe age podco poce, we hae D_ F ( ( E ) )... (22) 11 whee he lm of he ee I.... I meae he amo of domec ale added ha ca be geeaed fom he podco of go expo E coy, egadle of whehe hee go expo ae fally abobed mpog coy o o. Smmg eqao (22) oe all adg pae coe (.e., oe ), we oba he la 4 em eqao (19), whch ae he domec ale-added of coy geeaed fom all podco ace ha ae eeded he podco of go expo o he wold. eqao (19) how, domec ale added of coy emboded go expo ca be epaaed o D dec ale-added expo ad aowly defed GC elaed expo. Dec ale-added expo ca alo efe o Rcada ade (fal good exchage ad pply of aw maeal) he followg ee: I he fal podc expo fom coy comed by dec mpoe o emedae expo fom coy ed by dec mpoe podco of domecally comed fal podc. ll domec ale added of coy ch expo decly comed wh coy ad oly coe aoal bode oce (ehe fo compo o fo podco ace). ahemacally, ca be expeed a D_ RT ( ). 11 dealed mahemacal poof of eqao (22) poded ppedx E. 17

18 Ug a mla logc a eqao (3) ad (20), we ca alo oba a eqao ha ge he podc of he ale-added ad domec podco legh of adoal expo, whch eqal he poo of oal go op geeaed by he coepodg domec ale-added: X _ RT _ d ( ). Theefoe, he aeage domec podco legh of coy dec ale-added expo eqal he ao of h poo of go op o coepodg domec ale added ad ca be expeed a Pd _ RT X _ RT _ d ( ) (23) D_ RT ( ) ecae fal podc expo ae comed by dec mpoe ad do o ee he podco poce ay foeg coy, eaoal podco legh eqal zeo ad oal podco legh he ame a domec podco legh. I ca h be expeed a. Iemedae expo ed by dec mpoe he podco of domecally comed fal podc ae oled he podco poce oly wh he dec mpog coy; heefoe, he eaoal podco legh of he oce coe domec ale - added emboded ch emedae expo eqal he podco legh he dec mpog coy. Followg a mla logc a eqao (3) ad (20), we oba he eqao ha ge he podc of h poo of ale-added ad podco legh coy a X _ RT _ f ale-added expo fom coy o coy eqal: Pf _ RT. Theefoe, he aeage eaoal podco legh of dec X _ RT _ f (24) D_ RT ( ) ddg eqao (23) ad (24), we hae he oal podco legh of dec ale-added expo a P _ RT ( Pd _ RT ) ( Pf _ RT ) X _ RT _ D _ RT (25) 18

19 2.2.4 The podco legh of aowly defed Global ale Cha elaed ade The podco poce of GC elaed emedae expo moe complcaed ha he peo egme. Ule D emboded dec ale-added expo, D emboded GC elaed emedae expo co aoal bode a lea wce. Sbacg dec ale-added expo fom eqao (22), we oba he oce coy domec ale-added emboded GC elaed emedae expo. I ca be fhe decompoed o hee pa accodg o eqao (19) a follow: D_ GC ( ) (26) 12, (3aD _ GC _ ) (3bD _ GC _ RD _ F ) (3cD _ GC _ D _ INTex ) They ae he oce coy D decly abobed mpog coy (D_GC_), eed (e-mpoed) ad abobed by he oce coy (D_GC_), ad e-expoed by mpog coy o hd coe ad fally comed hee (D_GC_), epecely. Smmg eqao (26) oe all adg pae coe, we oba he la 3 em eqao (19), whch ae domec ale-added of coy geeaed fom all podco ace ha ae eeded he podco of GC elaed go emedae expo o he wold. Followg he ame logc o dee eqao (3) ad (20),.e., g he domec o eaoal podco legh of each age of go expo podco dced he la eco a wegh ad mmg aco all podco age, we ca oba he aeage domec ad eaoal podco legh of global ale cha elaed expo a well a 3 compoe a pacla blaeal ade oe. Fo ace, he podc of domec ale-added emboded blaeal GC elaed expo ad domec podco legh eqal he poo of go op coy (labeled a X _ GC _ d ) dced by he podco of coy domec ale-added emboded GC elaed expo, whch ca be expeed a: X _ GC _ d ( ) (27) 13, (3a) X _ GC d (3b) X _ GC d (3c) X _ GC d 12 Pleae oe ha he f em eqao (26) pa of he ecod em of eqao (21) of WWZ. The ecod ad hd em eqao (26) ae exacly he ame a he foh ad hd em eqao (21) of WWZ. 13 The aeage podco legh of adoal ade ad a dealed mahemacal poof of eqao (26) poded ppedx F. 19

20 Tem 3a coy go op geeaed by coy domec ale added GC elaed expo decly comed by adg pae; we label a X _ GC d fo ho. Tem 3b coy go op dced by coy domec ale added GC elaed expo eed ad fally comed a home; we label a X _ GC d fo ho. Tem 3c coy go op dced by coy ale added GC elaed expo ha ae eexpoed by coy ad fally comed hd coe; we label a X _ GC d ho. ll of hee dffee pa of go op ae aocaed wh domec ale-added GC elaed expo befoe leae he coy hogh fowad domec e-dal lage. Theefoe, he aeage domec podco legh of GC expo ca be comped a he weghed m of he ao of he poo of go op o coepodg domec ale-added of 3 compoe eqao (26) ad (27) epecely: fo Pd _ GC D _ GC _ D _ GC ( ( X _ GC _ d D _ GC D _ GC _ D _ GC ) ) D _ GC _ D _ GC ( ) ( ) (3a) Pd _ GC _,, (3b) Pd _ GC _ (3c) Pd _ GC _ (28) The aeage domec podco legh of he hee compoe ae labeled a, Pd _ GC _, ad Pd _ GC _ epecely. Pd _ GC _ Smlaly, he podc of domec ale-added emboded blaeal GC elaed expo ad eaoal podco legh (labeled a X _ GC _ f ) eqal oal eaoal (boh domec ad foeg) go op dced by domec ale-added of coy emboded GC elaed emedae expo, whch ca be expeed a: 20

21 X _ GC _ f ( ), (3b) X _ GC f (3a) X _ GC f (3c) X _ GC f (29) 14 Tem 3a epee eaoal go op geeaed he poce bewee domec ale-added of coy emboded GC expo ag a coy ad he ale-added decly abobed by fal podc comed coy ; we label a X _ GC f fo ho. Tem 3b epee eaoal go op geeaed he poce bewee domec aleadded of coy emboded GC expo ag a coy ad he ale-added hpped bac afe fhe poceg coy ad abobed by fal podc ha ae comed a home; we label a X _ GC f fo ho. Tem 3c epee eaoal go op geeaed he poce bewee domec ale-added of coy emboded GC expo ag a coy ad he ale-added fally abobed by fal podc comed hd coy ; we label a X _ GC f fo ho. ll of hee dffee pa of go op ae aocaed wh domec ale-added GC expo of coy afe leae he coy hogh fowad e-dal e-coy lage. Theefoe, he aeage eaoa l podco legh of coy GC expo o coy ca be comped a he weghed m of he ao of he poo of go op o coepodg domec ale-added of 3 compoe eqao (26) ad (29), epecely: 14 dealed mahemacal poof of eqao (29) poded ppedx G. 21

22 Pf _ GC D_ GC _ D_ GC ( X _ GC _ f D_ GC (, D_ GC _ D_ GC (3b) Pf _ GC _ ) ) ( ) ( ) D_ GC _ D_ GC (3a) Pf _ GC _,, (3c) Pf _ GC _ The aeage eaoal podco legh of he hee compoe ae labeled a Pf (30) _ GC _, Pf _ GC _, ad Pf _ GC _. Smmg eqao (28) ad (30), we oba he oal aeage podco legh of domec ale-added of coy emboded blaeal GC expo a follow: P _ GC X _ GC _ D_ GC X _ GC _ d X _ GC _ f D_ GC Pd _ GC Pf _ GC (31) Oboly, he m of X _ GC _ ad X _ RT _ meae oal wold go op geeaed by domec ale-added of coy emboded oal go expo. The weghed m of P _ GC ad P _ RT defe he aeage podco legh of domec ale-added emboded blaeal go expo. Thee a ce ymmey amog he em eqao (26) (30): all of hem ae baed o he meaeme ad decompoo of boh domec ale-added global ale cha expo ad global go op. I coe wh he go ade accog famewo popoed Koopma, Wag, ad We (2014). Ug coepodg compoe of domec ale-added GC elaed go expo eqao (26) a he deomao o dde eqao (27) ad (29) (.e., he coepodg pa of ale-added dced go op a meao), we ca oba he aeage legh of podco of each egme ad he weghed aeage a pacla global ale cha (eqao (28) ad (30)). Th meae he amo of global go op ha ca be geeaed by oe of domec ale-added coy ad oal beqe lzao he global podco ewo. Smmg eqao (27) ad (29) oe all adg pae coe, we oba 22

23 ( X _ GC _ X _ RT _ ) (32) 15 Eqao (32) how clealy ha he m of podco legh of adoal ad GC expo (eqal global oal op dced by domec ale-added go expo of coy o he wold) defed eqao (25) ad (31) pl he legh of pe domec podco defed eqao (21) eqal oal podco legh a defed eqao (3),.e.,, he podc of oal ale-added ad oal podco legh, whch, expeo, he ame a wha we hae defed fo a cloed ecoomy Seco 2.1. The oly dffeece ha max hee epee he global eoef ee fom he ICIO model of he global ecoomy. The ce ad eal lage of o podco legh dex yem ca be epeeed a a ee dagam, a how Fge 2. Fge 2 Podco egh Idex Syem: Sce ad Ieal age Podco legh baed o bacwad e-dy ad co-coy lage 15 dealed mahemacal poof of eqao (32) poded ppedx H. 23

24 Smla o he defo baed o fowad lage, he pecfcao of podco legh baed o bacwad lage a fom a decompoo of fal good ad ece compo a each coy/eco pa. Followg eqao (7) ad (9) of WWZ (2013), fal podc comed by eco coy ca be decompoed o ale-added oce a follow: * 1FD _ D 1FD _ D 2FD _ RT 2FD _ RT, 3aFD _ GC _ 3bFD _ GC _ 3FD _ GC 3cFD _ GC _ (33) Whee * a cala, epeeg fal podc of eco comed coy, whch he m of coy fal compo oce fom all coe, cldg ow. The f em eqao (33) ale-added domecally podced fal podc ha afy domec fal demad (DFD) who olg co bode ade ad podco ace; we label a pe domec ale-added (FD_D). The ecod em ha wo pa: em 2a foeg ale-added emboded coy fal podc mpo; em 2b emedae mpo fom a foeg coy ed by dec mpoe podco of domecally comed fal podc. The commo feae of boh 2a ad 2b ha foeg ale-added emboded ch mpo oly co aoal bode oce, o we label hem a dec ale-added ade (FD_RT). Pleae oe ha he dffeece bewee em 2a eqao (33) ad em 2a eqao (19) ha he fome clde ale-added oced fom all coe he wold, whle he lae oly come fom domec oce. Oboly, he hd em ale-added fom GC elaed ade emboded oal comed fal podc of coy fom he wold. I alo ha hee pa, coepodg o he hee pa eqao (19). Howee, ale-added hee pa ae oced fom all coe he wold (foeg ale-added), cldg coy elf, o we label hem a FD _ GC _, FD GC, ad FD _ GC _, epecely. Th bacwad-lage baed decompoo alo depced Fge 3. 24

25 Fge 3 Decompoo of Fal Demad good by dy Compo of fal podc by coy/eco Domec a domec mae decly 1-FD_D Tade pae decly comed domec mae 2-FD_RT Domec ad Foeg decly comed domec mae 3-FD_GC I fal podc mpo 2a-FD_RT_f I emedae mpo 2b-FD_RT_ Tade pae emedae mpo 3a. FD_GC_ Domec emedae ha e 3b. FD_GC_ Ohe coe emedae mpo 3c. FD_GC_ Followg he ame logc of Seco o 2.2.4, we cold compe each pa domec ad eaoal oal ad aeage podco legh a mmazed he followg wo eqao. Dealed deao ca be fod ppedx I. X _ yd 1 Xyd _ D, 3b Xyd _ GC _ 3a Xyd _ GC _ 2 Xyd _ RT 3c Xyd _ GC _ (34) 25

26 X _ yf Xyf _ D, 3b Xyf _ GC _ 2 Xyf _ RT 3a Xyf _ GC _ 3c Xyf _ GC _ (35) X _ ad X _ yf ae he podc of ale-added ad podco legh ad eqal o he yd domec ad eaoal go op dced by he podco of fal podc * comed coy, epecely. Theefoe, he ao of hee go op o * he aeage domec ad eaoal podco legh baed o bacwad e-dy ad co-coy lage. Sm X _ ad X _ yf, we oba he global go op de by he global demad yd fo fal podc of eco Coy : X _ y X _ yd X _ yf (36) Whee 1 N eco whch all eleme eqal 1. ecae global fal demad alway m o global ale-added, he fowad ad bacwad baed podco legh ae eqal o each ohe a he global leel. Howee, hey may o be eqal a he coy o coy/eco leel de o eaoal ade ad co bode podco ace. Th aally ae he qeo: Wha he elao bewee podco legh meae ad podco le poo? Ca podco legh meae be ed decly o fe peame o doweame of a coy o a coy/eco pa? Ce leae o clea o ch mpoa qeo ad ofe e podco legh meae o fe podco le poo decly. Th he opc we wll adde he ex eco. 26

27 2.3 Fom podco legh meae o podco le poo dex (wog poge) we hae defed GC elaed podco ad ade ace eale, eay o ee ha a GC podco le o oly ha a ag ad a edg age, alo ha o ole a lea oe ad ofe may addoal mddle age becae ale-added global podco cha eed o co aoal bode a lea wce. We h eed o defy ad qafy ale-added emboded expo cog aoal bode, a whch coy/eco pa ad wha amo, ode o coecly meae he podco le poo of each pecfc mddle podco age fo a pacla coy/eco pa. e code a global ale cha ag fom pmay p o ale-added a eco of coy, emboded go expo ed by eco j of coy, b fally abobed by fal podc of eco comed a coy. ccodg o he meae of podco legh of eaoal ade elaed podco ace baed o fowad lage decbed Seco 2.2., we ca expe ch a pecfc GC podco le a follow j j j G G j fal expo emedae expo (37) Whee , j 0 bj 0, y, j. a j1 a j, j. bj1 bj, y 0 Followg he ame logc o dee eqao (3) ad (20), we ca oba he podc of he ale-added ad podco legh bacwad o (,) ad fowad o (,) fom (,j) a G jj X _ GC j G G G w w j j w (37.1) ad 27

28 T2 Xy 0 _ GC G G G j (37.2) w w j j w epecely.smmg eqao (37.1) oe,,, ad,we ca oba he podc of he ale-added ad podco legh bacwad fom (,j) o all (,) a: X j G j j G w w G w j G j (37.3) Smmg eqao (37.2) oe,,, ad,we ca oba he podc of he ale-added ad podco legh fowad fom (,j) o all (,) a: G j G j w G w w Xy (37.4) j a pecal podco ode he global podco ewo, he cloe eco j of coy o hee ale-added cog aoal bode ha ed a p,he malle he go op ca dce (meaed by Xy j ); he cloe eco j of coy o hee fal podc ha e ale-added a oce,he malle he go op able o ph o (meaed by X j ). Theefoe, aeage podco le poo he global ale cha ca be defed a X j GC _ Pj (38) Xy X j j Th dex boded by oe. The lage he dex, he moe peam he coy/pa. Impoaly, de o defo, he peame ad doweame of a ge coy eco ae eally he ame hg, h oecomg he coecy of he podco poo dexe wdely ed ce leae, ch a he N* ad D* dexe popoed by Fally (2012) ad he Dow meae popoed by a ad Cho (2013). e code a mple mecal example, llaed Fge 4. Fge 4 GC poo a 3-coy, 2-eco example Naoal bode Naoal bode 1 S1 Domec Poo Ieaoal Poo R T1 Fal compo: =0.75

29 Thee ae 3 coe (S, R, ad T, epecely) ad 2 eco (1 ad 2) h mple podco cha. Coe S ad R oly podce ad do o come, wheea Coy T oly come ad do o podce. The aow dcae he deco of ale-added flow, ad he mecal ale o each le dcae he go ade e fom he elea peam ode o he coepodg doweam ode. Th, he oal ale added geeaed he f ode (Coy S, eco 1) amed o be 2, of whch 1 e o S2, ad 0.5 each e o R1 ad R2, epecely. The ale added boh R1 ad R2 ae amed o be 1. The ale added T1 ad T2 ae zeo (becae Coy T doe o podce). Wheee a ode bfcae o wo expo oe, amed ha he boh domec ale added ad foeg ale added wll be eely pl bewee he wo expo oe. Th, fom ode R1, he go ale of 1.5 pl o a expo of 0.75 o T1 ad T2, epecely. Thee ae 4 oe bewee he ale-added ogaed fom S1 ad comed a he fal deao T1 o T2: 1 S1 R1 T1 S1 podce emedae good ad expo o R1,ad R1 e o podce fal expo o T1 ad comed Coy T. 2 S1 R1 T2 S1 podce emedae good ad expo o R1,R1 podce fal expo o T2 ad comed by domec come. 3 S1 R2 T2 S1 podce emedae good ad expo o R2,R2 podce fal expo o T2 ad comed hee. 4 S1 S2 R2 T2 S1 podce emedae p o S2, S2 podce fhe poceed emedae expo o R2, ad R2 podce fal expo o T2 ad comed Coy T. 29

30 The oal ale-added of h podco ewo accoed a: Toal ale-added (T) = (S1)+ (S2)+ (R1)+ (R2)= =5 The ale of he fal podc ae 1 S1 R1 T = S1 R1 T = S1 R2 T = 1 4 S1 S2 R2 T = 2.5 Theefoe, he oal ale of fal podc of he ewo eqal: FD= =5,.e., he ale-added ad he ale of fal podc ae eqal o each ohe a he global leel. Thee ae hee way o compe he aeage podco legh: Fly, baed o fowad lage (m oe he ag ode, S1, a example): The ale added ceaed by S1 each oe led below: 1 S1 R1 T1: S1 R1 T2: S1 R2 T2:0.5 4 S1 S2 R2 T2:1 Smmg hem, he oal ale-added ceaed alog h podco le eqal = =2 The co ph go op dced by S1 ale added ca be meaed a 1 S1 R1 T = S1 R1 T = S1 R2 T2 30

31 = 1 4 S1 S2 R2 T = 3 Theefoe, he aeage podco legh of ale-added ceaed by S1 baed o fowad lage ca be comped a: ( )/2=5/2=2.5 Fo each oe, we ca pl he go ade o a domec poo ad a eaoal poo. Fo S1, Domec Poo: ( )/2 = 3/2=1.5 Ieaoal Poo: ( )/2 = 2/2=1 The followg dey alway hold: Toal podco legh (2.5) = Domec Poo (1.5) + Ieaoal Poo (1) Smlaly, he ale-added ceaed by S2 eqal: : S2 R2 T2:1 The oal op dced by ale-added ceaed by S2 eqal : GO: S2 R2 T2: = 2 The aeage podco legh of ale-added ceaed by S2 baed o fowad lage ca be comped a: 2/1=2 ad domec ad eaoal poo boh eqal 1. The aboe accog ad compao el ca be mmazed o he followg able: TO P DP FP S S S 3 7 7/3 4/3 1 R R R Wold 5 9 9/5 6/5 3/5 Noe: We ame o ale-added a T, o all dexe eqal o zeo. Secodly, baed o bacwad lage (m oe compo deao, T2, a example) 31

32 Thee ae 3 oe cobg o he ale-added of he fal podc comed a T2. The oal ale-added abobed hogh each oe led below: 1 S1 R1 T2: = S1 R2 T2: = 1 3 S1 S2 R2 T2: = 2.5 The oal ale of he fal podc a T2 eqal =4.25. To podce ch amo of fal podc, he eqed go op podced by each podco le eqal: 1 S1 R1 T2: = 1 2 S1 R2 T2: = S1 S2 R2 T2: = 5.5 Smmg he accmlaed ale-added each oe ad ddg by he oal ale of fal podc podced a T2, he aeage podco legh of ale-added abobed a T2 baed o bacwad lage ca be comped a: ( )/4.25=8/4.25=32/17 I obo fom ch a mple example ha he podco legh comped fom fowad ad bacwad lage oly eqal each ohe a he global leel, o a he coy/eco pa; hee o clea mplcao fo peame o doweame fom podco legh meae ehe baed o fowad o bacwad lage becae hey may ge dffee ag fo each coy/eco pa. The el ca be mmazed o he followg able: TO P DP FP T /3 1 1/3 T /17 21/17 11/17 32

33 T 5 9 9/5 6/5 3/5 Wold 5 9 9/5 6/5 3/5 Noe: hee ae o fal good podco fo S ad R ode by ampo, o he bacwad lage baed dexe all eqal o zeo. Fally, aggegag fo a emedae podco age (R2 a example o odce podco le poo dex) R2 locaed he mddle of 2 podco ad ade oe ogag fom S1 ad edg a T2. Toal ale-added flow ad o of h podco ode ae: 1 S1 R2 T2: S1 S2 R2 T2: The oal ale added emboded he op of R2 ca be meaed a 1+2.5=3.5. The podco legh of he ag age (S1) of R2 (oal go op de by fal good compo T2) baed o bacwad lage eqal: Xy 2 = ( )/2.5 = 1.4; The podco legh o he edg compo age (T2) of R2 (oal go op phed by ale-added fom R2) eqal: X 2 = ( )/3.5 = 1. Theefoe, he podco poo of R2 ca be comped a X2 GCP _ P2 1.4 / / X Xy 2 2 Th mple ha all podco le ag fom S1 ad edg a T2 ae locaed a a elae doweam poo, j a how Fge 4, cloe o fal compo. The aboe compao ca be mmazed o he followg able: 1 GO1 P1 2 GO2 P2 Relae Poo R ½ R / /12 R 3 4 4/ /7 S S S /3 0 33

34 T / T / T 5 9 9/ Th mple mecal example how clealy ha he podco le poo dex cloely elaed o he meae of podco legh, b he podco legh meae may o decly mply podco le poo. Oly hogh aggegao, codeg boh fowad ad bacwad lage baed podco legh meae of a pacla coy/eco pa locaed he mddle age of podco le, by f deemg dace o boh he ag ad edg age of all elaed podco le, he elae peame o doweame global podco of a pacla coy/eco pa ca be coecly emaed. The coece of g fowad ad bacwad lage baed podco legh meae o fe podco le poo alo ecogzed by ohe ece leae. Fo example, a e al. (2016) ha defed a peame dex bewee ay wo dy pa baed o aeage popagao legh" (P) meae popoed by Dezebache e al. (2005), whch alo aa o whehe oe adop a fowad o bacwad lage pepece whe compg he aeage mbe of age bewee a pa of de. lhogh efl ag elae podco le poo bewee ay wo coy/eco pa, he meae o deged o deeme he elae podco le poo fo a pacla coy/eco pa global ale cha a o Global ale-cha pacpao dexe The amo of ecal Specalzao (meaed by boh S ad S1 a popoed by Hmmel e al., 2001) a pece of go expo ha bee ed wdely he leae a he dex o qafy he exe of a coy pacpao global ale cha (Koopma e al., 2010; OECD, 2013). Howee, exclde podco o afy domec fal demad (whch clde boh pe domec ad eaoal ade elaed podco ace), ad by oly codeg expo ace, may o coe all he poble way a coy cold cobe domec ale-added o he global podco ewo. Fm a coy/dy may pacpae eaoal podco cha hee way: 34

35 1. Expog domec ale-added emedae p ed by ohe coe o podce expo decly o decly; he oce coy ale-added ha how p a foeg ale-added ohe coe podco of expo; 2. Ug ohe coe ale-added o podce expo decly o decly; he ohe coe ale-added ha how p a foeg ale-added he oce coe go expo; 3. Expog domec ale-added emedae p ed by ohe coe o podce ohe coe domec comed fal podc decly (a he oce o a hd coy). The global ale cha pacpao dexe ed he leae, ch a he S ad S1 a pece of go expo, oly ae he f wo chael o codeao, ee f he hd chael may be qe baal epecally fo lage ecoome a boh oce ad deao. Ug he decompoo of ale-added geeaed fom each dy/coy pa (GDP by dy ac) expeed eqao (19), we ca flly defy all he hee poble way a coy ca ealze domec ale-added he global podco ewo ad coc a dex ha help o meae he fll exe o whch podco faco ae employed a pacla coy-eco oled he global podco poce. Sch a GC pacpao dex baed o fowad dal lage ca be defed mahemacally a follow: GCP _ F a ( [ a [ D_ GC _ EI ] X a ) D_ GC _ ] a [ a D_ GC _ a a, (39) The deomao of eqao (32) he ale-added geeaed podco fom a coy/eco pa; he meao of eqao (32) domec ale added of coy emboded aowly defed GC expo o he wold. I exclde domec ale-added emboded fal good expo (wh eaoal podco legh of zeo) ad domec ale-added emboded emedae expo, b ed by he dec mpoe o podce fal podc wh bode ad comed hee who gog hogh a hd coy. So eqao (32) ge ] 35

36 domec ale-added geeaed fom GC elaed podco ace a a hae of oal eco ale added. I dffe fom he fowad dal lage baed GC pacpao dex defed peo leae (S1 a pece of go expo) wo way: (a) baed o he aleadded cocep whle boh S1 ad go expo ae baed o he go cocep; (b) a podco cocep, o oly ade. I clde domec ale-added emboded emedae p fom he expog coy ha decly abobed by dec adg pae. Theefoe, compleely eflec he degee of pacpao of podco faco employed a pacla coy/eco co bode podco hag ace. aed o he bacwad decompoo of fal good podco we ca defe aohe GC pacpao dex baed o bacwad dal lage a follow: GCP _ DF _ GC _ * * * * DF _ GC _ DF _ GC _ * * *, (40) whee * he oal fal good podco of eco a Coy ; he hee meao (40) ge he hae of foeg ale-added elaed o GC ade ad co coy podco hag he oal ale of fal good podced coy. I deomao he ale of each coy fal good podco (boh expo ad domec fal e). The global m of meao (ad each of hee compoe) eqal he global m of he meao eqao (32). 16 Theefoe, a he global leel, he fowad ad bacwad dal lage baed GC pacpao dexe (ad each of hee compoe) eqal each ohe, a mla popey of S ad S1 baed GC pacpao dexe. Howee, alo dffe fom he bacwad dal lage baed GC pacpao dex defed peo leae (S a pece of go expo) wo way: (a) baed o a e cocep whle boh S ad go expo ae baed o a go cocep; (b) a podco cocep, o oly ade. I clde foeg ale-added 16 The mah poof poded ppedx J. 36

37 emboded emedae mpo ha decly abobed by he mpog coy (wh podco hag ace wh he oce o hd coe). Theefoe, compleely eflec he degee of foeg podco faco pacpao he home coy/eco podco of fal podc, ad meae eaoal podco hag ace fom aohe pepece: how a coy podco ele o ohe coe podco faco cobo. ggegag eqao (39) ad (40) oe all coe, we ca how ha he fowad ad bacwad podco lage baed GC pacpao dexe ae eqal o each ohe a he global leel (ee ppedx J fo deal). 3. Emao Rel pplyg he podco legh meae a well a boh he GC pacpao ad he poo dexe deeloped he peo eco o WIOD daa, a e of dexe ca be emaed ad ed o qaaely decbe he ml-dmeoal ce ad he eolg ed of ao GC fo 41 coe ad 34 de oe Sce all he dexe ca be emaed a boh he mo aggegaed wold ad he moe daggegaed blaeal-eco leel, we oba a lage amo of mecal el. To llae he emao ocome a maageable mae, we f epo a ee of example a ao daggegaed leel o hghlgh he ylzed fac baed o o ew GC dex yem ad demoae he adaage compaed o he exg dexe he leae, we he codc ecoomec aaly o he ole of GC he ecoomc hoc bogh by he ece global facal c a a moe compehee applcao of o ewly deeloped GC dexe. 3.1 Podco legh dex Emao el Tag he Eleccal ad Opcal Eqpme Seco a a example, Fge 5 epo he bac emao el fo Cha ad he US, a he Coy-Seco eel fo

38 Fge 5 Podco egh of Eleccal ad Opcal Eqpme Seco, 2011 The emao el Fge 5 pode wh he followg obeao: (1) The dex ale ae alway hghe fo Cha ha ha fo he US, whch mea he ale added ceaed by Cha ha o go hogh moe ep befoe eachg fal e. I ohe wod, compaed wh he US, ale-added ceaed fom Cha Eleccal Eqpme Seco eed o go hogh moe podco age o aeage befoe eachg fal e. (2) Compaed wh he pe domec ad he dec ale-added expo podco mode, ale added ceaed alog he GC ha he loge podco legh (P_GC). Th el ely eaoable a moe pacpa ad podco ep ae oled he GC podco poce. (3) ale added abobed decly by dec mpoe (P_GC_) hae he loge podco legh. I ch cae, ale added flow bac o he GC ewo fom he dec mpog coy, fhe gog hogh eeal podco age, he e o he dec mpoe ad fally abobed hee. (4) The eaoal poo of GC podco legh alway loge ha he domec poo. Th fdg eflec he global ceae ecal pecalzao: he moe fagmeed he podco poce, he moe pacpa ae oled, ad he le he poo allocaed o each pacpa. 38

39 oe fomao ca be obaed f we emae he dexe a he blaeal-eco leel. Ug he US Eleccal ad Opcal Eqpme Seco a a example, compaed o he ale added flow o Caada, ala, ad Ra, he ale added mpoed by ome Ea a ecoome (ch a Cha, Koea, ad Tawa) ha o go hogh moe podco age ode he US o each he fal come 17. So he eaoal poo of GC legh elaely loge fo US ale added expoed o Cha, Koea, ad Tawa (fom 1.9 o 2.5), ad hoe fo US ale added expoed o Caada, ala, ad Ra (aod 0.81). Table 3 egh of Ieaoal Podco Poo fo ale dded Ceaed by he US Eleccal Eqpme Seco, 2011 Dec Impoe egh of Ieaoal Podco Poo TWN KOR CHN CN US RUS TWN=Tawa; KOR=Koea; CHN=Cha; CN=Caada; US=ala; RUS=Ra Ha he legh of Global ale Cha become loge o hoe oe me? Oe mpoa qeo addeed he ece GC elaed leae : Ha he global podco cha become le o moe fagmeed? o de coclde ha global podco ha become moe fagmeed oday ha decade ago. how Feea ad Hao (1996), he mpoed emedae p he US hae ceaed fom 5.3% o 11.6% bewee 1972 ad Smlaly, Hmmel e al. (2001) fd ha he wold S (ecal pecalzao) hae of expo ha gow almo 30% bewee 1970 ad 1990, whch acco fo moe ha 30% of oeall expo gowh we wll how lae Table 4, he legh of global ale cha ha Ea a coe pacpae gfcaly loge ha ohe coe, whch mea he podco ae moe globalzed elaely ha ohe coe. 18 Fally (2011) dcae ha he podco cha (o he dace o fal demad) he US appea o hae hoeed oe me ad coclde ha ch a ed alo a global pheomeo. Coe wh Fally, o calclao alo how ha he podco legh of he US geg hoe. h fdg eeed a he global leel. I ppedx K, we how ha he og ampo The ame de hae he ame podco legh aco coe he ma faco ha lead o he pzzlg fdg by Fally. 39

40 O emao el clealy how ha he Global ale Cha geg loge, whch eflec he ceag fagmeao of GC elaed podco ad ade ace. oeoe, he dco bewee dffee ype of podco ad ade ace eable o fhe egae he majo de behd he legheg of GC. how Fge 6, he wold aeage Toal Podco egh how a clealy pwad ed, epecally afe yea 2002 (h ed wa empoaly eped by he global facal c dg 2008 o 2009). Fhemoe, he aeage podco legh of GC ha ceaed by 0.36 fom 2002 o 2011, whch mch fae ha he dec ale-added expo ad pe domec podco legh.fge 6 The Upwad Ted of Podco egh, Wold eage I Fge 7, we foc o GC podco ace o egae he chage of domec ad eaoal poo. We fd ha he ceag legh of GC pmaly de by he apd gowh of eaoal poo. 40

41 Fge 7 The Podco egh of Domec ad Ieaoal Poo of GC, Wold eage, 1995 o Domec Poo Ieaoal Poo To ee obe of el, we fhe egae he chage of podco legh a he coy ad ecoal leel. I Fge 8, we compae he majo poo of podco legh aco coe. Fo Cha, he oal aeage podco legh, a well a all of poo, loge 2011 ha Fo Gemay, Japa, ad he US, he pe domec ad dec ale-added expo podco legh hae lghly deceaed o emaed able dg he ample peod. he aeage GC podco legh, epecally eaoal poo, ha ceaed codeably fo all coe oe h peod, ee whe he oal aeage podco legh became hoe fo Japa ad he US Th may eflec he pheomeo of offhog podco ace aboad hee deeloped ecoome. Whe moe podco ace go aboad, he eaoal poo of GC ge loge whle domec poo become hoe. 41

42 Fge 8 Decompoo of Podco egh fo ajo Ecoome CHN=Cha; DEU=Gemay; JPN=Japa; US=Ued Sae The ame el ca be fod a he ecoal leel. Fge 9 how ha he wold aeage podco legh loge yea 2011 fo all eco. I addo, compaed wh pe domec ad dec ale-added expo podco legh, he ceag ed of GC podco legh moe gfca fo almo all eco. 42

43 Fge 9 Decompoo of Podco egh fo Typcal Seco TP P_GC l30 e ce l30 l24 Wae Tapo l24 l17 Eleccy, Ga ad Wae l17 l15tapo Eqpmel15 l14eleccal Eqpmel14 l12 l8 l4 l3 l2 l1 ac eal Refed Peolem Texle Podc Food g gcle l12 l8 l4 l3 l2 l P_D P_RT l30e ce l30 l24 Wae Tapo l24 Eleccy, l17 Ga ad Wae l17 l15 Tapo Eqpmel15 l14 Eleccal Eqpmel14 l12 ac eal l12 l8 Refed Peolem l8 l4 l3 l2 l1 Texle Podc Food g gcle l4 l3 l2 l I coclo, g he podco legh dexe ewly defed h pape, we hae obeed he ceag ed of fagmeao podco, epecally Global ale Cha elaed podco ace. 43

44 3.2 Fom podco legh meae o GC poo dex The GC poo dex defed h pape eable o foc o a pecfc ale cha (ogag fom S ad edg a T) ad meae he dace fom ay podco age bewee he fal demad ad he al faco p a podco le by a combao of podco lage baed o boh fowad ad bacwad lage. oe mpoaly, h meae eole he pzzlg e ce leae ha he Upeame ad Doweame dexe ae compaable. O GC poo dex meae a mddle podco age (ay (,j)) dace o boh ed of he elaed podco le a he mo dealed leel ha a fom (,) ad ed a (,). I allow o accaely qafy he poo of ay pacla podco ode by compag fowad ad bacwad podco legh. Whe he poo dex mbe lage, dcae ha he fowad dace fom he podco ode coceed elaely loge o he podco age locaed away fom he fal compo ed of he pacla podco le. The mecal el a he coy leel how ha dg , a coeed by WIOD daa, Cha he coy cloe o he fal compo ed all he me, whle Ra alway pooed o he mo peam de. O mecal el ae coadcoy o lle e al. (2015). The el how ha, compaed wh ohe coe, Cha he mo peam coy he wold, fa away fom he fal compo ed; b fac, o el ae o acally coadcoy wh lle fdg. The eao fo he coecy ae a follow: F, he calclao h pape foce o ale-added Iemedae Expo. The dec ale added expo ad pe domec podco, whch ae elea o deep co bode podco hag ace, ae exclded fom o ewly defed meae. O mecal el h moe accaely meae he poo of dffee podco ode Global ale Cha. Secod, whe he Upeame (OU) ad Doweame (ID) dexe of a coy/eco pa comped by lle e al. ae hgh, mea ha he dace bewee he coy/eco pa o he faco p/fal compo ed loge. Howee, a we how he mecal example, g bacwad o fowad lage baed podco legh aloe cao ell he coy/eco pa elae poo a podco le becae he ao of he fowad 44

45 ad bacwad legh o each ed of he podco le cold ll be elaely hoe o loge. J a Table 4 how, he aeage legh of global ale cha ha Cha pacpae gfcaly loge ha ohe coe, b ca ll be locaed he mo dowe am poo of GC. Table 4 Coy eel GC Poo Idex, 2011 Coy Poo Idex eage egh of ale Cha ha Egage RUS US US GR CN FIN TWN EX JPN DEU KOR FR IND IT CHN RUS=Ra; US=ala; US=Ued Sae; GR=Ued Kgdom; CN=Caada; FIN=Flad; TWN=Tawa, Cha; EX=exco; JPN=Japa; DEU=Gemay; KOR=Koea; FR=Face; IND=Ida; IT=Ialy; CHN=Cha ohe oable el fom Table 4 ha, boh Ea a Ecoome (JPN, KOR, CHN, TWN, ec) ad ecoome abda aal eoce (RUS, US, FIN, ec.) ae oled elaely loge ale cha. The ale cha poo fo Ea a Ecoome ae elaely doweam, a hey ae moe pecalzed aemblg ad poceg ace. I coa, aal-eoce-abda ecoome ch a RUS ad US ae locaed elaely peam. Th clealy eflec he ey dffeece amog GC poo dex, Upeame ad Doweame. Fhemoe, o calclao el how ha he GC poo fo a cea eco may ay codeably aco coe, whch eflec he dffeece podco age. Co-coy compao of fo ypcal eco ae how Table 5. 45

46 (1) Eleccal ad Opcal Eqpme Coe ha pecalze aemblg ad poceg ace, ch a CHN ad EX, ae locaed o he mo doweam de, a hey ae placed a he fal age of he podco cha. I coa, he ale cha poo fo he ame eco US, TWN, JPN ad RUS ae locaed moe peam, a hey pacpae GC a pode of coe compoe o eegy eoce. (2) Tapo Eqpme Two aal-eoce-abda coe, US ad RUS, ae pooed he mo peam de o pode eegy eed fo he whole ale cha. Whle JPN, KOR, EX ad CN ae locaed a he fal age of he podco cha, whch ae ey cloe o he fal compo mae. (3) Texle Podc I labo-ee eco le exle, hee low-labo-co deelopg coe, CHN, EX ad IND, ae locaed he doweam ed. (4) e ce I he be ece mae, a ae ooced fom deeloped meca ad Eopea coe ad codced by a deelopg coe, epecally Ida ad Cha. Th ecal pecalzao pae clealy how o calclao el Table 5. IND ad CHN ae pooed o mo doweam de a he fal pode of be ece. To fhe chec he eaoablee of o GC poo dex, we eed whehe egaely coelaed wh he bacwad lage GC pacpao dex. Foeg ale added ae accmlaed fom peam o doweam. a el, doweam podce ae expeced o hae a lage foeg ale added hae he podco. Table 5 Secoal eel: compao of GC poo aco Coe Eleccal Eqpme Tapo Eqpme e Sece Texle Podc Coy Poo Coy Poo Coy Poo Coy Poo US US RUS JPN TWN RUS GR TWN JPN TWN US FIN

47 RUS IND DEU KOR FIN FIN EX RUS KOR GR FR US DEU IT IT US IT US FIN CN GR CHN KOR DEU FR DEU JPN GR US FR CN IT CN JPN TWN FR IND EX US CHN EX KOR CHN EX CHN CN IND IND We chooe wo ypcal eco (Tapo Eqpme, g) o e he elaohp bewee GC poo dex ad bacwad pacpao dex. how Fge 10 ad 10, he egae elaohp bewee hee wo dexe ae ey gfca. Fge 10 Tapo Eqpme Seco: GC Poo & acwad age GC Pacpao 47

48 Fge 10 g Seco: GC Poo & acwad age GC Pacpao 3.3 Pacpao dex Hmmel e al. (2001) ecal Specfcao Idexe, he S ad S1 o go expo ao, ae wdely ed he leae o meae he exe of GC pacpao ce hey wee f popoed by Koopma e al. (2011). how Fge 11, he S ad S1 ao fo Cha ad he US ca pode wh efl fomao of GC pacpao fom a lea wo apec: (1) Cha pacpao Global ecal Specfcao ha ceaed damacally ce 1998; (2) The pwad ed of ecal Specfcao fo boh Cha ad he US ha bee empoaly eped by he Facal C. Fge 11 S ad S1 ao, 1995 o CHN 0.30 US S1 S S1 S 48

49 CHN=Cha; US=Ued Sae Howee, hee ae wo majo hocomg hoe adoal pacpao dexe: 1) Ug go expo a he deomao. The ao mgh be ey hgh j becae ome eco may hae ey lle dec expo (e.g., g ad Sece). I ch a cae, he dex ale mgh become ey lage. I may empcal cae a we wll how lae, we may o be able o deeme whehe he dex becomg lage de o he lage meao o he mall deomao ( mah em, he dex goe o fy whe he deomao goe o zeo) ad whehe he dex oeemae GC pacpao. 2) Dec ale-added expo (oly oe bode cog) ae o exclded fom he calclao, whch alo lead o oeemao. I fac, he ao of adoal emedae good emedae expo declg oe me. I he meame, hee a oceable g ed GC elaed ade (wo o moe bode cog) dg he pa 30 yea. The GC pacpao dex deeloped h pape ha oecome he aboe-meoed hocomg ad able o accaely meae he degee of GC pacpao a he hae of oal ale-added podco a he blaeal/eco leel ad ca be fhe decompoed o hee pa accodg o whee he ale added abobed. Sch dealed GC pacpao meae wll pode bee dexe ha ae eeded o codc GC elaed empcal aaly Emao el The fowad lage baed pacpao dex popoed h pape ca be deood a Wha he peceage ha ale added geeaed by a pecfc coy-eco pa ha cobed o he GC podco ewo? whle he bacwad lage baed pacpao dex ca be deood a Wha he peceage of fal podc podced by a pecfc coy-eco pa ha come fom GC elaed podco ad ade ace? (1) Coy leel Ug Cha ad he US a example, Fge 12 how he me ee pae of fowad/bacwad lage pacpao dexe. O el ae coe wh he obeed pwad ed of he adoal S/S1 dexe, ad he egae mpac of he facal c ha alo bee clealy efleced. Howee, he ew dexe clealy dcae ha Cha bacwad lage baed pacpao dex coely hghe ha fowad lage baed pacpao 49

50 dex, coa wh ha of he US. Th dffee fom he adoal dexe ha pode a mxed pce Fge 11. oe coe wh he fac ha compaed o he US, Cha pacpae GC elaely moe fom he doweam ha peam. ohe po woh og ha he pacpao ao of Cha, fowad o bacwad owhadg, gfcaly hghe ha ha of he US. Fge 12 Fowad/acwad age Pacpao Idexe, 1995 o 2011 (2) Secoal leel CHN=Cha; US=Ued Sae Table 6 l he fowad/bacwad lage baed pacpao dexe yea 2011 fo 6 eco ad 8 coe, whch mple he chaacec of dffee coe whe pacpag GC podco. Fo example, he agcle eco of Flad, he fowad lage baed pacpao ao gfcaly hghe ha ha ohe coe. Th mecal el le wh he fac ha foey he doma dy Flad. Smlaly, ce Ra he ga eegy, mg eco fowad lage baed pacpao ao a hgh a 33.8%, gfca coa o he bacwad lage baed pacpao ao (of oly 1.7%). Table 6 Secoal eel Pacpao Idex, Fowad/acwad age Fowad age aed Pacpao Idex gcle g Eleccal Eqpme Tapo Eqpme R 6.0% 15.1% 5.0% 2.8% CHN 2.3% 6.5% 12.1% 4.9% DEU 7.3% 22.1% 20.3% 14.5% FIN 10.7% 20.9% 18.6% 11.8% IDN 2.7% 21.5% 6.6% 2.8% IND 1.6% 9.9% 9.5% 4.2% 50

51 RUS 1.8% 33.8% 6.4% 4.3% US 3.4% 5.5% 12.9% 7.2% acwad age aed Pacpao Idex gcle g Eleccal Eqpme Tapo Eqpme R 2.4% 2.1% 8.1% 8.0% CHN 1.7% 4.0% 21.3% 8.0% DEU 7.9% 5.1% 24.7% 28.1% FIN 4.4% 7.5% 28.6% 21.9% IDN 1.4% 0.7% 13.0% 6.4% IND 0.7% 1.2% 10.1% 7.7% RUS 2.5% 1.7% 4.5% 11.3% US 4.1% 2.3% 6.7% 14.4% R=azl; CHN=Cha; DEU=Gemay; FIN=Flad; IDN=Idoea; IND=Ida; RUS=Ra; US=Ued Sae Regadg he wo ypcal mafacg de, eleccal ad opcal eqpme ad apoao eqpme, Gemay he global mafacg powe, o fowad ad bacwad lage baed pacpao ao ae boh hghe ha ha of ohe coe. Wh a hgh fowad lage baed pacpao ao, a hgh popoo of ale-added geeaed by Gemay ha flowed o he ewo of Global ale Cha. Wh a hgh bacwad lage baed pacpao ao, a hgh popoo of compoe ad pa he fal podc podced by Gemay ae podced by ohe coe GC Why do we eed he ew GC Pacpao Idex? (1). To elmae he ecoal leel ba adoal dexe meoed peoly, g go expo a he deomao may lead o oeemao ba a he blaeal/ecoal leel. Fo compao, we e boh go expo ad eco GDP a he deomao epecely, o emae he fowad lage pacpao dex. how Table 7, he oeall leel of he dex ale hghe whe g go expo a he deomao. oeoe, he pacpao ao fo ee eco (maed wh gay bacgod colo) ae baally hghe ha 100%. Thee x eco hae oe hg commo: gea popoo of he ale added expoed decly, whch emboded ohe eco expo. The oeemao poblem moe pooced fo eegy ad ece eco, a a lage popoo of he ale added expoed decly. We chooe hee ypcal eco o llae h po. Two of hem belog o he eegy ad ece eco ( Real Tade, Eleccy, Ga 51

52 ad Wae ), whle he hd oe, eahe ad Foowea, a ypcal dec expog eco. we hae expeced, he oeemao poblem moe eo he eegy ad ece eco (Table 8). 52

53 Table 7 Fowad age Pacpao Idex fo US eco, 2011 Compao bewee Tadoal ad New eae Deomao: Expo gcle 10.92% 3.36% g 47.87% 5.46% Food 2.96% 0.90% Texle Podc 12.54% 7.64% eahe ad Foowea 4.05% 2.28% Wood Podc 15.90% 3.86% Pape ad Pg 16.98% 4.36% Refed Peolem 9.19% 5.19% Chemcal Podc 16.06% 10.26% Rbbe ad Plac 18.90% 7.55% Ohe No-eal 14.41% 3.84% ac eal 23.54% 11.77% achey 9.04% 7.95% Eleccal Eqpme 20.74% 12.87% Tapo Eqpme 5.08% 7.16% Recyclg 10.32% 5.58% Eleccy, Ga ad Wae % 1.61% Coco % 0.37% Sale of ehcle ad Fel % 0.40% Wholeale Tade 27.46% 4.54% Real Tade % 0.26% Hoel ad Reaa % 0.62% Ilad Tapo 24.86% 5.14% Wae Tapo 12.88% 6.61% Tapo 9.78% 5.48% Ohe Tapo 51.27% 7.84% Po ad Telecommcao 53.00% 2.62% Facal Iemedao 29.14% 3.32% Real Eae % 0.41% e ce 50.65% 3.72% Pblc dm 27.71% 0.37% Edcao 18.84% 0.15% Healh ad Socal Wo 10.70% 0.01% Ohe Sece 34.68% 1.50% Pae Hoehold % 0.40% Deomao: GDP 53

54 Table 8 Compao bewee Tadoal ad New Pacpao Idexe fo Thee Typcal Seco Eleccy, Ga ad Wae Real Tade eahe ad Foowea Deomao: Expo GDP Expo GDP Expo GDP US 693.0% 3.6% 62.6% 2.7% 9.5% 5.7% R 112.8% 2.9% 217.2% 2.0% 14.2% 8.3% CN 51.5% 5.9% 115.5% 3.6% 2.8% 4.8% CHN 625.9% 5.5% 27.4% 3.8% 2.6% 3.3% DEU 50.5% 8.9% 769.2% 6.3% 5.3% 13.5% ESP 188.5% 5.5% 241.0% 3.6% 3.0% 6.4% FR 67.4% 5.2% % 4.3% 1.9% 4.2% GR 276.0% 4.0% 337.9% 3.6% 5.8% 10.9% IND % 3.0% 893.5% 2.0% 6.8% 5.1% IT 300.7% 4.8% 38.4% 4.4% 4.1% 7.6% JPN 619.9% 3.1% 58.2% 1.0% 20.9% 3.0% KOR % 8.0% 56.8% 3.2% 13.6% 10.5% EX 341.7% 2.9% 39.0% 5.1% 9.2% 4.4% RUS 264.6% 11.8% 35.0% 4.6% 39.5% 5.4% TWN % 15.2% % 13.6% 4.6% 17.3% US 553.5% 1.6% % 0.3% 4.0% 2.3% US=ala; R=azl; CN=Caada; CHN=Cha; DEU=Gemay; ESP=Spa; FR=Face; GR=Ued Kgdom; IND=Ida; IT=Ialy; JPN=Japa; KOR=Koea; EX=exco; RUS=Ra; TWN=Tawa; US=Ued Sae (2). To dffeeae bewee deep ad hallow co coy podco hag ace how Eqao (19), he ale added go expo of a coy ca be decompoed o wo majo pa baed o fowad dal lage: Cog he aoal bode oly oce dec ale-added ade, epeeg he ype of co bode pecalzao ha elaely hallow: (a). Fal good ade (exle fom Eglad exchaged fo we made Face); (b). Tadoal emedae ade (abobed by dec mpoe who fhe co-bode podco ace; aw maeal pple ch a coffee bea ad cde ol). Two o moe bode cog GC elaed ade, epeeg he ype of co bode pecalzao ha deepe: (a) ale-added abobed by dec mpoe wh addoal cobode podco ace; (b) Domec ale-added e-mpoed ad abobed domecally; (c) ale-added e-expoed by mpog coy b abobed by a hd coy wh addoal co bode podco ace. 54

55 The hallow pa of co coy pecalzao o clded he meao of he GC pacpao ao ad a how Fge 13, he elae mpoace of Domec ale added adoal emedae expo dmhg oe me fo all ample coe (alhogh he ed wa eped empoaly by he Global Facal C). Iead, he domec ale added expoed a GC elaed podco ace ceag damacally. Fge 13 D Tadoal Iemedae Expo a a hae of D all Iemedae Expo CHN DEU JPN US CHN=Cha; DEU=Gemay; JPN=Japa; US=Ued Sae Smlaly, fom he pepece of bacwad lage, he foeg ale added emboded he fal good podced a coy ca alo be dded o wo compoe: Oe ceaed by deep co bode podco hag ace (wo o moe bode cog alog he ale cha), ad he ohe ceaed by hallow co bode pecalzao (oly oe me bode cog). Smla o he fowad lage baed pacpao dex, foeg ale added emboded dec ale-added ade alo exclded, a hee o mlaoal podco acy oled adoal emedae good ade, ad he elae mpoace of Foeg ale added adoal emedae mpo declg oe me a how below Fge

56 0.84 Fge 14 F Tadoal Iemedae Impo a a hae of F all Iemedae Impo CHN DEU JPN US CHN=Cha; DEU=Gemay; JPN=Japa; US=Ued Sae (3) To pode moe dealed daa fo GC elaed empcal aaly meoed peoly, he domec ale added emboded GC elaed expo (wh wo o moe bode cog befoe eachg fal demad) ca be fhe decompoed o hee pa: () abobed by dec mpoe; () e-mpoed ad abobed domecally; (C) abobed by a hd coy. The pe cha Fge 15 llae ha Pa C acco fo he lage popoo all fo coe eleced. Domec ale added emboded h pa e-expoed by dec mpoe, ad fally abobed a hd coy. oe mpoaly, he elae ze of pa,, ad C may eflec he dffeece of ole he GC fo dffee coe. Fo example, pa,.e., e-mpoed ad abobed domecally, acco fo a lage popoo he US, a he US coollg boh ed (deg ad ale) of he ale cha. I coa, Pa elaely malle fo exco, whch moe pecalzed poceg ad aembly ace. 56

57 Fge 15 Decompoo of Domec ale dded GC Relaed Expo, 2011 CHN=Cha; DEU=Gemay; EX=exco; US=Ued Sae Table 9 l he fowad/bacwad decompoo el fo 16 coe. Pa C acco fo he lage popoo he fowad lage decompoo. Th el ey ob fo all ample coe. 57

58 Table 9 Decompoo of he ale dded Deep Co Coy Podco Shag ce Coy Pa Pa Pa C US 2.51% 2.64% 94.85% CN 4.21% 6.77% 89.02% CHN 2.27% 12.32% 85.41% DEU 1.98% 11.46% 86.56% FIN 2.25% 1.14% 96.61% FR 2.24% 6.93% 90.83% GR 1.74% 5.74% 92.52% IDN 2.18% 2.11% 95.71% IND 2.44% 2.34% 95.22% IT 2.34% 4.77% 92.88% JPN 2.57% 5.91% 91.52% KOR 2.65% 2.22% 95.13% EX 4.81% 6.36% 88.82% RUS 2.77% 2.25% 94.98% TWN 2.99% 1.00% 96.01% US 2.00% 24.56% 73.44% US=ala; CN=Caada; CHN=Cha; DEU=Gemay; FIN=Flad; GR=Ued Kgdom; IDN=Idoea; IND=Ida; IT=Ialy; JPN=Japa; KOR=Koea; EX=exco; RUS=Ra; TWN=Tawa; US=Ued Sae 3.4 Idex applcao: GC legh, pacpao ey, podco le poo ad he ecoomc hoc of he ece global facal c I he afemah of he Global Facal C, a how Fge 16, wold ade gew by 6.2% 2011, 2.8% 2012, ad 3.0% Th gowh ade olme baally lowe ha he pe-c aeage of 7.1% ( ), ad lghly below he gowh ae of wold GDP eal em. 58

59 Fge 16 The Gowh of Wold Tade befoe ad afe he Facal C we aalyzed befoe, ale-added ceaed by a coy ca be decompoed o hee pa: pe domec podco ad compo, flow-o hogh dec ale-added ade, ad flow-o hogh GC ade. The, facal c, ae hee dffeece he degee of effec o he hee ype of ale added? Fge 17 The Effec of Facal C o Dffee ale dded Ceag ce 59