Analysing global value chains using input-output economics: Proceed with care

Ö. Nomaler, B. Verspagen

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Abstract

Input-output economics has become a popular tool to analyse the
international fragmentation of value chains, especially now that several
multi-regional tables that cover large parts of the global economy have
become available. It has been argued that these tables, when analysed
with the help of the input-output economics toolbox, can provide better
insights about global value chains than can be obtained by case studies
of individual value chains. We argue that there are several problems
related to the aggregated nature of the input-output table that may lead
to large distortions and biases in the aggregate picture about global
value chains that is obtained by input-output analysis. There are three
main sources behind the distortion obtained in static decompositions of
value chains: the average nature of value added to output ratios in the
tables, the emergence of production cycles in the process of aggregating
several value chains into a single table, and the characteristic of the
so-called inverse Leontief matrix to even out the value added
distribution. We provide an overview of how these distortions work, and
argue that under a wide range of circumstances, input-output methods
tend to overstate the contribution of the final sector to the value
chain. We also show that this bias does not vanish when we compare
input-output decompositions at two different points in time.
Original languageEnglish
Place of PublicationMaastricht
PublisherUNU-MERIT
Publication statusPublished - 1 Jan 2014

Publication series

SeriesUNU-MERIT Working Papers
Number070

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