What is Trade in Value Added (TiVA)
BREAKING DOWN Trade in Value Added (TiVA)
The TiVa joint Organization for Economic Cooperation and development (OECD)–World Trade Organization (WTO) initiative considers the value added by each country in the production of goods and services that are consumed worldwide. Goods and services purchased are composed of inputs from various countries around the world, but the flows of the components in these global supply and production chains were not accurately reflected in previous measurement indicators. TiVA indicators are designed to better inform policy makers by providing information and insights on commercial relations between nations. TiVA traces the value added by each industry and country in the production chain to the final export, and allocates the value added to these source industries and countries. TiVA recognizes that exports in a globalized economy rely on global value chains (GVCs), which use intermediate items imported from various industries in a number of countries.
TiVA in action
Traditional trade statistics record gross flows of goods and services each time they cross a border. This creates a double counting or multiple counting problem. For example, a traded intermediate item used as an input for an export may be counted several times in trade figures. The TiVA approach avoids double counting by accounting for the net trade flow between countries. For example, a cellphone manufactured in China for export may need several components such as memory chips, touch screen and camera from overseas companies located in Korea, Taiwan and the U.S. The overseas companies in turn need intermediate inputs such as electronic components and integrated circuits imported from other nations to produce the cellphone components that will be exported to the Chinese manufacturer. The TiVA method allocates the value added by each of these companies involved in the manufacture of the final cell phone export.
OECD role in TiVA measures
To improve and build on TiVA methodology, the OECD analyzes trade policy, investment policy, policies for development and a range of other domestic policies to aid policy makers to determine how economies can benefit from engagement in global value chains. The Inter-Country Input-Output (ICIO) system calculates indicators to measure economic globalization, including trade in jobs and skills to show how many and what type of jobs are sustained by foreign final demand. The ICIO plus emissions data produces estimates of trade in embodied carbon to highlight where carbon dioxide is being consumed rather than produced. In addition, the OECD is evolving accounting frameworks and content of national input-output and supply use tables to more accurately measure global trade.