Trade in Value Added (TiVA) Definition

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Trade in Value Added (TiVA) Definition

What Is Trade in Value Added (TiVA)?

TiVA is a statistical approach for estimating the sources of value added while manufacturing products and services for export and import.

Key Takeaways

  • The Trade in Value Added (TiVA) statistical method considers the value added by each country in the production of goods and services that are consumed worldwide.
  • The TiVA method eliminates the double or multiple counting problem prevalent in traditional trade statistics.
  • The OECD analyzes trade policy, investment policy, and a host of other policy measures to assist countries in accounting for global supply chain value systems.

Understanding Trade in Value Added (TiVA)

The TiVA effort is a joint OECD-WTO initiative that evaluates the value contributed by each nation in the creation of products and services that are consumed globally. Purchased goods and services are made up of inputs from all over the globe, but traditional measuring indicators could not fully capture the movements of the components in these global supply and production chains.

TiVA indicators are intended to better educate policymakers by giving information and insights on international commercial ties. TiVA follows the value contributed by each industry and nation in the production chain all the way to the final export and then distributes the value added to these source industries and countries. TiVA understands that in a worldwide economy, exports depend on global value chains (GVCs), which employ intermediate commodities purchased from numerous sectors in several nations.

Traditional trade statistics track gross movements of commodities and services across borders. This results in a double-counting or multiple-counting issue. A traded intermediate item used as an input for an export, for example, may be counted many times in trade numbers.

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By accounting for the net trade flow between nations, the TiVA technique eliminates duplicate counting. For example, a cellphone made in China for export may need memory chips, touch screens, and cameras from businesses in Korea, Taiwan, and the United States.

To build the cellphone components that will be shipped to the Chinese manufacturer, the foreign businesses need intermediate inputs like as electronic components and integrated circuits sourced from other countries. The TiVA technique distributes the value contributed by each of these enterprises participating in the final mobile phone export manufacturing.

OECD Role in TiVA Measures

To refine and expand on TiVA methodology, the OECD examines trade policy, investment policy, development policies, and a variety of other domestic policies to assist policymakers in determining how countries might gain from participation in global value chains.

The Inter-Country Input-Output (ICIO) system assesses economic globalization indicators such as trade-in jobs and skills to indicate how many and what types of employment are maintained by foreign final demand. The ICIO plus emissions data generates estimates of trade-in embodied carbon, highlighting where CO2 is absorbed rather than created. Furthermore, in order to more precisely quantify global commerce, the OECD is developing accounting systems and the content of country input-output and supply use tables.

Example of TiVA

Apple’s goods are one of the most often used examples of a global value chain. The Cupertino corporation creates its goods in the United States, but they are built in China using inputs and intermediary processes from a diverse range of industries from Germany to Japan to South Korea.

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The link between the many firms participating in the process complicates the production process even further. For example, Foxconn, the business in charge of final assembly, has facilities in both Taiwan and Mainland China. Both are engaged in the manufacturing and assembly of Apple’s goods, as well as the creation of component components for its gadgets.

Because of the complicated exchange of components and supplier parts, as well as the intermediate procedures involved, a typical system that solely considers the direct source of a part for accounting would result in inaccuracies. A TiVA accounting system generates a detailed dataset that accounts for the value added to the device at each stage of the manufacturing process.

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