The Similarity of Global Value Chains: A Network-Based Measure

TL;DR

This paper introduces a novel network-based measure to compare global value chains across countries and time, capturing complex relationships and revealing trends and disruptions in global trade structures.

Contribution

It develops a new similarity measure for GVCs using network analysis, improving comparison accuracy over existing methods by considering all direct and indirect relationships.

Findings

GVC similarity has increased globally from 1995 to 2011.

Economic crisis temporarily reduced GVC similarity.

The measure helps assess dependency, risk, and competitiveness in global trade.

Abstract

International trade has been increasingly organized in the form of global value chains (GVCs) where different stages of production are located in different countries. This recent phenomenon has substantial consequences for both trade policy design at the national or regional level and business decision making at the firm level. In this paper, we provide a new method for comparing GVCs across countries and over time. First, we use the World Input-Output Database (WIOD) to construct both the upstream and downstream global value networks, where the nodes are individual sectors in different countries and the links are the value-added contribution relationships. Second, we introduce a network-based measure of node similarity to compare the GVCs between any pair of countries for each sector and each year available in the WIOD. Our network-based similarity is a better measure for node comparison than the existing ones because it takes into account all the direct and indirect relationships between country-sector pairs, is applicable to both directed and weighted networks with self-loops, and takes into account externally defined node attributes. As a result, our measure of similarity reveals the most intensive interactions among the GVCs across countries and over time. From 1995 to 2011, the average similarity between sectors and countries have clear increasing trends, which are temporarily interrupted by the recent economic crisis. This measure of the similarity of GVCs provides quantitative answers to important questions about dependency, sustainability, risk, and competition in the global production system.