Identify and character GVC Activities in the Presence of Foreign Direct Investment
25 September 2025 1:00 pm CEST
Join us for an interesting presentation and discussion with Zhi Wang (Schar School of Policy and Government at George Mason University)
Venue
wiiw Library, 2nd floor
Rahlgasse 3
1060 Vienna
Austria
Description
We developed a unified framework to decompose production and output in net and gross terms simultaneously to identify, measure and characterize GVC activities in the presence of foreign direct investment (FDI). By decomposing both GDP and gross inputs based on forward linkages and both final production and gross output based on backward linkages, this new framework accounts for the presence of foreign-invested enterprises (FIEs), their interactions with local firms in the host countries as well as their activities in international trade. It not only considers the production position of firms in GVCs (upstream, downstream, or both), but also what mode they used to participate the GVCs (trade, FDI, or both), thus provide a unified decomposition framework that accounts for firm heterogeneities. We find that GVC activities in GDP are only a relatively small part of all GVC activities, more of them are reflected by upstream intermediate imports and downstream intermediate exports. The import and export of these intermediates are the most important feature of GVC activities, which cannot be identified by decomposing net value (GDP) only; we replace the vaguely defined "simple" and "complex" GVC concepts in the previous literature with a clear economic concept of the position of a particular GVC activity in the production chain and provide accurate economic interpretations of each detailed item of the decomposition; we also extend the Vertical Specialization concept, previously only related to exports, to include intermediate inputs (outputs) used to meet domestic demand. This not only allows us to measure the complexity and degree of Vertical Specialization in pure domestic and traditional trade related production activities but also unifies the decomposition of gross exports into this new framework, because gross exports are only a part of gross output. Based on this new decomposition framework, we redefined various GVC indexes and discussed the macro structure of supply chains and the measure of interdependence among supply chains in different economies at country/sector level. The size of the GVC activities identified and measured by this framework nearly trebled than what measured in the previous literature that decompose net value only or treats FIEs the same as local firms.
Author
Zhi Wang is a research professor of Schar School of Policy and Government at George Mason University. He is also a professor and founding director of Research Center of Global Value Chains at University of International Business and Economics in Beijing. He worked as a lead international economist in the research division of the U.S. International Trade Commission for more than 10 years before his current appointment. He also worked as a consultant for the World Bank in the World Development Report, 1995, as an economist at Purdue University, Economic Research service (ERS) of U.S. Department of Agriculture, Bureau of Economic Analysis (BEA) of U.S. Department of Commerce, and as a senior research scientist at School of Computational Sciences of George Mason University before he joined USITC in 2005. He was a research fellow at Chinese Academy of Agricultural Sciences before he came to the United States and served on the board of directors of the Chinese Economists Society (CES) during 1992-93. His major fields of expertise include computable general equilibrium modeling, value chain in global production network, measuring trade in value-added, data reconciliation methods, economic integration among Greater China area, Chinese economies, and international trade.