A fresh perspective on global trade: The World Input-Output Database

The WIOD research project has developed a new database that sheds light on the global value chains created by world trade. The database is intended to help analysts and policy makers assess the effects of globalisation on trade patterns, environmental pressures and socio-economic development around the world.

Known as ‘The World Input-Output Database’, the public data source provides statistics on all 27 EU Member States and 13 other important counties (including the US, Japan and the BRIC states1). The combined GDP of these 40 countries accounts for more than 85% of the world total. At the core of the database are harmonised supply and use tables coupled with bilateral trade data in goods and services. The data covers the period from 1995 to 2009.

Since its launch in April 2012, the database has gained considerable attention among international policy makers, particularly those dealing with cross-border trade. Already in its development stage the database attracted the interest of the OECD and the WTO, both of which provided the project with institutional support.

Addressing the final WIOD conference in April 2012, in Brussels, WTO Deputy Director-General Alejandro Jara pointed out that “how bilateral trade flows are measured impacts profoundly the policy debate”. This very much applies in the case of the WIOD database; instead of simply counting the gross value of goods and services exchanged, the new database reveals the value-added embodied in these goods and services as they are traded internationally.

Indeed, WIOD’s findings alter the way we perceive international competitiveness and regard various sectors in country comparisons. Illustrating this point, Alejandro Jara noted how the database offers a radically different perspective on the Sino-American trade imbalance: “When measured in value-added”, he said, “China’s trade surplus with the United States in recent times is some 40% less than the gross trade figures would have you believe”.

EU Trade Commissioner Karel De Gucht confirmed that the database casts a very different light on global trade. “Our trade relationships with key partners are different from what we previously thought”, he observed. Focusing on Europe’s trade imbalance with China, the Commissioner said that “when we look at trade in value as opposed to traditional statistics, our trade deficit with China is reduced by 36%”. He added that China “begins to look like less of a problem” when viewed through the lens of the new database.

One of the database’s major benefits is the way it statistically captures the economic reality of globalised value added chains. It reflects the fact that traded products are not produced in a single location, but are the end-result of a series of steps carried out in many countries around the world. This is just one of the ways that the database enriches our common basis for empirical research and policy making.

Another valuable feature of the database is its offering of statistics on trade in services. The researchers who created the database note that “no standardised database on bilateral service flows exists”. To help address this shortcoming, they integrated data from a number of different sources including the OECD, Eurostat, the IMF and the WTO.

Regarding WIOD’s analytical advancements, the project produced valuable insights into the effects of global trade on various factors of production. The consortium identified distinct differences, for example, in the flows of capital and labour among emerging economies versus advanced economies. Relatively speaking, emerging economies tend to export more capital while importing labour in value terms, the researchers note. That pattern is reversed, however, in the case of advanced economies.

Taking data on the factors of production a step further, WIOD also breaks down value-weighted labour exports by educational attainment. Here the data show (as expected) that advanced countries are relatively stronger net exporters of high-educated labour. In providing this kind of differentiated data, WIOD demonstrates its capacity to support more efficient recognition of patterns emerging in trade deficits and surpluses among various countries.

Despite their diligence in developing a robust and comparable set of figures, the WIOD researchers acknowledge that some of the data remain sketchy. Any ‘measurement’ of trade in value-added should be treated as an “estimate rather than a ‘measurement’’’, project coordinator Marcel Timmer reminds us. And when it comes to measuring trade in services, he adds that there are clear gaps in our knowledge at lower levels of aggregation. These gaps may explain why Eurostat reportedly has no plans to embrace the project’s statistics any time in the near future. Nonetheless, the WTO and OECD have apparently expressed an interest in setting up a similar measurement framework for their regularly produced statistics.

 

1 BRIC refers to the countries of Brazil, Russia, India and China, which are all deemed to be at a similar stage of newly advanced economic development.

WIOD – World input-output database: construction and applications (duration: 1/5//2009 –30/4/2012). FP7 Socio-economic Sciences and Humanities, Activity 2 – “Combining economic, social and environmental objectives in a European perspective”, Research area 2.1 “Socio-economic development trajectories”. Collaborative project (large scale integrating project).

See: http://www.wiod.org/

Contact: Marcel Timmer, M.P.Timmer@rug.nl