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Measuring Costa Rica´s participation in GVC´s

Measuring Costa Rica´s participation in GVC´s. Department of Macroeconomic Statistics ICMTEG, Aguascalientes, México Sep-Oct, 2014. OUTLINE. Costa Rica in GVC´s Research goals based on international IOT Construction of international IOT Results for Costa Rica. 2.

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Measuring Costa Rica´s participation in GVC´s

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  1. Measuring Costa Rica´s participation in GVC´s Department of Macroeconomic Statistics ICMTEG, Aguascalientes, México Sep-Oct, 2014

  2. OUTLINE • Costa Rica in GVC´s • Research goals based on international IOT • Construction of international IOT • Results for Costa Rica. 2

  3. Rol of Costa Rica in GVC´s • What do we know? • Where we are? 3

  4. Strengthening Costa Rica’s Knowledge Base on GVCs 4

  5. There are three mayor networksbutLatinAmericaparticipationislimited North America Europe Asia 5 Sourse: OECD Inter-country I-O model, 2011

  6. Trade and Investment Source: COMEX basedon Central Bank data. 6 Source: COMEX, using PROCOMER data. * Data for 2013 are basedonestimates

  7. Costa Rica’s Participation in GVCs 7 Source: COMEX, based on PROCOMER data.

  8. Employment Costa Rica: Employment generated by FDI Costa Rica: Average monthly wages, FZR vs. the economy at large (2008-2012) Advanced Manufacturing 2013: 4X 2000 Life Sciences 2013: 12X 2000 Services 2013: 44X 2000 Source: PROCOMER 8 Source: CINDE

  9. Participation of Costa Rica in themedicaldevices CGV Manufacturedcomponents Distribution Assembly Marketing and sales Post sale services R&D of theproduct Type of products Exports of final goods Prototipe Software production Assembly Cardiovascular Training Capital goods $32.546.321 Packaging Electronic developtment Regulatoryapproval Orthopedics Consultant Terapeutics $301.026.155 Sterilization Metalworkingpresicion Developmentprocess Infusionsystems Repairs Medicals $270.528.089 Engineering Plasticsmolding and extrusion Other Disposables $575.546.086 Textiles and fabric Buyers Imputproviders Metals Resins Distribuidores Mayoristas Doctors and Nurses Chemicals Textiles Individual patients Hospitals(Public/Private) Source: Based on Bamber and Gereffi(2013). Duke University.

  10. Research goals based on international IOT • Trade in Value Added • Participation in GVC has been documented (gross trade). • The “Made in the World” initiative of the WTO promoted the concept of Trade in Value Added (TiVA). • Through TiVA there is a better understanding of the country contribution to GVC´s (more consistent with the management of the GDP) • Questions: • To what extent Costa Rica participate in the global economy in terms of trade in value added? • How does it change the relationship with our trade partners? • What are the implications of these changes for our trade policy? 10

  11. Research goals based on international IOT • Comparative advantages • Based on the CGV’s the “trade of tasks” is predominant which drives development countries to develop comparative advantages easily. • Trade in value added statistics provide a new opportunity to measure the comparative advantages of the country. • Questions • How competitive are the Costarricanindustries? • What are the comparative advantage characteristics of the industries in terms of TiVA? • What industries does Costa Rica have advantages on? • Which ones are developing advantages and what are the policies to strengthen those advantages? 11

  12. Research goals based on international IOT • Exports breakdown • The international IOT allows to breakdown the exports in its various components. • To understand the participation of Costa Rica in the global production it is crucial to measure the domestic component and to what extend it provides to the global production. • Questions: • ¿How to breakdown the gross exports value in its various components? • What is the domestic component of the exports and how it compares to other countries? • How that domestic component fit in the global production? 12

  13. Construction of international IOT • Main goal: • To integrate the domestic input-output table into the international input-output table (WIOD) 13

  14. Construction of international IOT Costa Rica´s domestic OIT International IOT (WIOD) 35 sectors 42 countries 14

  15. Methodology to construct the international IOT 2. International IOT 1. Domestic IOT Preparing the structure: 1-period; 2-currency; 3-prices; 4-industries. 5-trade flows To fit into the international IOT: Breakdown of Costa Rica separated from the rest of the world (ROW) Consistency testing: Some negatives and some readjustments Consistency with national accounts Backdating: RAS algorithm 2011 -> 2009 Analysis with CGV indicators: TiVA, comparative advantages, Exports breakdown Assignedtradeby country: Importstableand exportsvector 15

  16. Preparing the domestic IOT 1 Period: Data from 2009 (last available year for the WIOD at that moment) 2 Currency: colones -> dollars (official exchange rate for the year 2009, BCCR) 3 Price consistency : basic prices in IOT and WIOD 4 Concept consistency of industry /product: ISIC (SUT classification) Breakdown: Intermediate consumption, final consumption, capital) Classification of the WIOD 5 Consistency of the trade flows: CIF / FOB adjustment for the imports WIOD is FOB (even when it is based on import data) Final Destination Origin FOB: CIF: 16

  17. “Backdating”: to2009 Intermediatedemand Final demand Externaldemand Domesticsupply Exports vector Intermediatedemandtable Final demandtable Externalsupply Importstable Valueadded Valueaddedtable Data from SUT 2009 Trade data 2009 Final add 17

  18. “Backdating”: to 2009 Intermediatedemand Intermediatedemandtablefrom IOT 2011 Domesticsupply RAS Algorithm Intermediatedemandtable Total intermediatesupply (supply) Intermediatedemand (use) Data from SUT 2009

  19. Assigningtradeby country Intermediatedemand Final demand Externaldemand • Data sources • Goods:Exports, importsdatabase • DGA – imports FOB • PROCOMER - exports • Services: data and technicalcriteria • BCCR - transport, repairs • PROCOMER – groundtransport • ICT - turism • DGAC – air transport • WIOD – severalsectors Domesticsupply Exports vector Intermediatedemandtable Final demandtable Externalsupply Importtable Valueadded Valueaddedtable 19

  20. Vector of exportsby country and by sector UnitedStates China Canada Externaldemand Destiantions Uses Agriculture Intermediatedemand Exports vector Manufacture Services Industries Agriculture Final demand Manufacture Services Agriculture Manufacture Capital Services

  21. United States Costa Rica dissagregation to therest of theworld Costa Rica ROW ROW - CR China Agriculture Manufacture Agriculture Agriculture Manufacture Agriculture Manufacture Manufacture Services Services Services Services Agriculture Usa Domestic IOT Imports: Costa Rica UnitedStates Imports: China from USA Manufacture Services Agriculture Imports: USA from China China domestic IOT China Manufacture Services Agriculture Exports: Costa Rica Costa Rica domenstic IOT Costa Rica ROW Manufacture Services Agriculture ROW - CR Manufacture Services

  22. Consistency testing National accounts consistency: Export data from CR, (no mirror data) to ensure consistency with the national accounts. 1 2 Reduce negative number findings: Better assumptions and adjustments to minimize negative numbers. Discrepancies vector: When Costa Rica data is more accurate than international data. 3 e.g.: Tourism -> Hotels & restaurants Exports from CR to USA. National sources: $418,2M Imports of EE.UU. USA data: $53,8M Discrepancies ROW: -$364,3 M 22

  23. Resultsfor Costa Rica • Lessonslernedfromtheinternational IOT 23

  24. Fromgrossvalue to valueadded • Value added • Contribution in the exported value to the final destination • E.g.: Korea – manufacture: 15% to USA • Accurate to measure the value of the international trade if it is focused on intermediate goods • Gross value • Cumulative value exported to another country • E.g.: Korea – product to China: 65% • Accurate to measure value if trade is focused on final goods 100 Marketing and Sales & customer service EEUU 30 70 % of the final value of the product China Assembly 5 65 15 Advanced manufacture Corea 50 Vietnam 10 Manufacture of basic inputs 40 40 Research and development EEUU 24 0

  25. New methodology shows different magnitudes on exports according to GV vs. VA Costa Rica: Structure of the export by country 2009 25

  26. Also differences on imports GV vs. VA Costa Rica: Structure of theimportsbyorigin 2009 26

  27. Implication por tradepolicy • Goals of diversification in terms of value added • Real diversification according to final demand • Reduce trade barriers direct and indirect trade partners on CGVs • Multilateral agreements to help create GVC´s: • Alianza del Pacífico • Agreements on the supply chains: • IT Agreement (ITA) • Anti-Counterfeiting Trade Agreement. (ACTA) 1 2 27

  28. Implicationsforpublicpolicies Encourage participation of CR in CGV • Diversification: companies, markets, activities • High value FDI. • Expand trade platform • Strengthen: Participation • Merging with local companies. • Entrepreneurship. • To higher vale added activities • Continuous investment and human capital. • Promote innovation. 1 2 3 28

  29. What are the components of the exports Gross exports Foreign component Domestic content Source:Koopman, Shang, Zhi (2013) 29

  30. Domesticcontent of theexports • Intermediate and final product have the same weight. • Exports indirectly to third parties. 30

  31. Implication for public policies • Trade policy towards intermediate goods • Imports contribute to the competitiveness of the companies. • To reduce trade barriers on the supply chains. • Strategy to increase domestic content • No restrictions for inputs with competitive prices. • Strength the capacity building for companies to provide inputs with a clear competitive advantage. 1 2 31

  32. Measuring Costa Rica´s participation in GVC´s Department of Macroeconomic Statistics ICMTEG, Aguascalientes, México Sep-Oct, 2014

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