Wednesday, 7 May 2014

Global value chains and why UK exporting has not done better

OECD has worked on global value chains GVCs. here's the idea:

As in this nice example of forward  participation, even though gross exports of A are 100, 110 of that are then re-exported.  And backward participation gives the corresponding import value.

How much are these? Figure 2 gives the answer

The UK figure is that total foreign inputs and domestically produced inputs used in third economies’ exports are 45% of total exports, made up of 20% and 25% backward and forward.  That is, for every £1 of UK exports, 25p is re-exported and 20p is imported.

How does this relate to exchange rates, which fell in the UK in 2008, but were not accompanied by a rise in exports?  I conjecture GVCs  might be part of the reason: for the UK, 20p of our exports are imported, so that as the exchange rate falls that 20p gets more expensive.  And if 25p is then re-exported the exchange rate between the re-exporting trading partners matters too.