On March 23, 2022, the Mosbacher Institute’s Global Value Chains Program hosted a talk by Dr. Kei-Mu Yi, Senior Vice President of the Federal Reserve Bank of Dallas and the M.D. Anderson Professor of Economics at the University of Houston. The talk, Global Value Chains in the Macroeconomy, discussed big picture questions about global value chains from the perspective of data and theories. Yi addressed questions such as, how do we measure the extent of global value chains (GVCs)? What impact have GVCs had on globalization and long-run economic growth? Why has the growth of GVCs slowed over the past decade? And, what do pandemics imply about GVCs going forward?
The first part of the presentation introduced the concept of GVCs and their role in enhancing and complementing growth and development. Yi argued that GVCs can magnify the impact of trade agreements and improvements in transportation technology. As such, he added, GVCs can help spur greater increases in international trade than there would be if GVCs did not exist. Additionally, they provide countries with a bigger opportunity to specialize in particular stages of a good’s production, thus allowing for more gains from trade, including higher GDP per capita and living standards. He then discussed how GVCs are measured, particularly using the share of foreign value-added embodied in a country’s exports as an indicator for GVC participation.
The second part of Yi’s presentation covered recent trends in GVC growth. The value-added in exports data shows that GVC participation was increasing between 1970 and 2008. Following the 2008 financial crisis, however, most major economies, including the United States, decreased their GVC participation and increased their domestic value-added. While there is no clear-cut explanation for why this has been the case, Yi presented three possible hypotheses. The first explanation was that this trend is the result of a lack of new major trade agreements or improvements in transportation technology. The second is that China’s economic growth meant that many Chinese products are now made for domestic consumption, and that the higher wages in China made it less attractive for production sourcing. The final possible explanation is that services, rather than goods, have been taking a larger share of the global economy, and that it is more difficult to measure GVCs in services.
The final part of the presentation discussed the role of GVCs in four major shocks that faced the world in recent years: the U.S.-China tariff war, the COVID-19 pandemic, post-pandemic supply chain disruptions and inflation, and the Russia-Ukraine conflict. In all these instances, he argued, GVCs are essential for understanding the impact of these global shocks on the economy. After the presentation, Yi opened the floor for a Q&A session, moderated by the Mosbacher Institute director, Dr. Raymond Robertson.