A blog post from BEA Director Vipin Arora
I’d bet most people have heard of global supply chains. But are you familiar with their fraternal twin, global value chains? I’m guessing not. BEA’s statistics on value chains are an underappreciated tool that can help policymakers and the public better understand supply chains.
Global supply chains map how international production of a good or service is organized and moved. Global value chains provide a related but alternative perspective by measuring how much value is created at each step in that same production process. Value creation is quantified as the amount that each step’s output rises in value above that step’s input costs. The sum of value created across all stages of production for the good or service is total value added.
Let me illustrate using the example of coffee beans. A simple global supply chain in this case traces the physical flow of beans until they are sold to consumers. The coffee beans may be grown in Colombia, roasted in Germany, and then branded and sold to customers in the United States. The corresponding global value chain for coffee beans will show how much value is created by farmers in Colombia, by roasters in Germany, and by retailers in the United States. The sum of the value created in those steps is total value added.
So how do statistics on value chains help us understand supply chains? Comprehensive value chain statistics—which BEA is aspiring to develop—map the production process across countries for goods, services, or industries. In our coffee example, we would map the process through Colombia, Germany, and the United States. This information can supplement existing supply chain data for a particular commodity or industry.
Comprehensive statistics on value chains also highlight which countries and steps in a production process create the most and least monetary value. In our example, the most value is likely created in the United States in the branding and retail step, while the least value is likely created in farming the beans. Such a comparison is not possible with standard supply chain statistics. Relatedly, data on value chains can improve analyses on the robustness of supply chains by providing more information on the stages of production, not just the logistics of production.
Finally, comprehensive global value chain statistics allow you to compare the value created inside and outside the United States for commodities or industries. Going back to our example, these statistics can show the relative value created in Colombia and Germany compared to the United States.
BEA currently publishes a subset of comprehensive value chain statistics that estimate the domestic value creation and foreign content embedded in the goods and services exported by the United States. Excitingly, we’re expanding beyond exports to include major components of gross domestic product (GDP), such as consumer spending, investment, and government spending. That means data users will be able to estimate the foreign content embodied in each component of GDP—for the first time ever. The new statistics will be available in the spring.
I hope you can see the tremendous power of global value chain statistics. They can help us better understand global supply chains and, more broadly, the interconnections and dependencies between the United States and other countries.