In recent years, the participation of Polish enterprises in international value chains has been high, and a rising proportion of value added generated in Poland is being used in other countries’ exports.
The distribution of various stages of production among branches of multinational corporations located in various countries has resulted in a strong internationalization of production. The final product as received by the customer now is made up of parts manufactured and services rendered in many countries.
Therefore, it has become necessary to isolate the domestic content in the value of exports (in the form of the so-called domestic value added, DVA for the purpose of this article) and the foreign content in the value of exports (in the form of import contribution), and to identify the streams of the international value added flows. In recent years, thanks to the integration of the tables of inter-sectoral flows (the so-called input-output tables) of individual countries, it has become possible to gain insight into the processes of creation of added value in international trade.
The internationalization of production
Unlike traditional foreign trade statistics, the value added statistics eliminate multiple counting of the value of trade in intermediate goods, which repeatedly cross the borders before being used in the final product. Furthermore, the distinction between domestic and foreign value added allows for more accurate matching of trade transactions with economic processes in the individual economies.
For this purpose, in 2013, the Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO) began to publish data on the origin of the value added included contained in the exports of a number of countries. The most recent estimation of these phenomena is provided by the third edition of the Trade in Value Added (TiVA) database published by the OECD in December of 2018.
As production processes became internationalized through global value chains during the two previous decades has resulted in a significant increase in the importance of foreign value added (FVA for the purpose of this article) in exports (i.e. in import-intensity of exports). In the traditional foreign trade statistics this was primarily reflected by a sharp increase in trade in intermediate goods between developed and emerging economies. Poland’s growing integration with the global economy has contributed to a marked increase in the share of foreign value added in our exports. According to data published by OECD in 2013, the share of FVA in Polish exports increased from 15.4 per cent in 1995 to 28.4 per cent in 2011, when it reached its peak. Thus, goods and services produced domestically accounted for 84.6 per cent of exports in 1995, and 71.6 per cent in 2011. The shrinking share of DVA has been a universal phenomenon, which in addition has caused significant changes in the sectoral structure of exports.
According to recently published data, the share of FDA in Polish exports (of both goods and services) in the years 2011-2015 decreased from 28.4 per cent to 26.6 per cent. In 2016, this share increased to 26.9 per cent.
The steady decline in the share of FDA in exports was a global phenomenon and occurred in a vast majority of economies. Across the world, this share decreased from 23.2 per cent to 21.4 per cent on average between 2011 and 2015. In 2016, the share of FDA declined yet again, to 20.8 per cent, that is, the lowest point since at least 2004.
The drop in the share of FVA in global trade was mainly caused by the weaker flows of foreign direct investment, especially those from developed economies to the developing economies. As a result, since 2011, the growth of global trade has slowed down markedly compared with the period before the global crisis of 2008-2009. This is especially reflected in the decline in the share of foreign value added in the exports of emerging economies, while the scale of the adjustment has been smaller in developed countries.
The most pronounced reduction in the share of foreign value added occurred in the developing economies of Asia, where it was the highest before the crisis of 2008-2009. Smaller changes took place in the European Union, where this share remains relatively high, indicating a high degree of interdependence between the economies of the individual EU member states. In the years 2011-2015, the share of FVA in the exports of EU member states decreased from 27.1 per cent to 25.5 per cent, falling further to 25.3 per cent in 2016.
Due to the higher share of FVA in Polish exports than the global average, Poland as an exporter weighs more in the statistics covering gross exports (including both domestic value added and foreign value added) than in the statistics covering only domestic value added. In 2016, this difference was 0.1 percentage points. Poland was ranked 22nd in the world in terms of the value of gross exports, and 23rd when the domestic value added criterion is applied. China was the largest exporter in the world in 2016 according to the value of gross exports, but the United States ranked 1st when it comes to the domestic value added.
Lower demand in the automotive industry
The primary driver of the decline in the share of foreign value added in total Polish exports was the decrease in FVA in the exports of vehicles and automotive parts after 2011. This was because the automotive sector is the largest Polish exporter, and absorbs the largest share of the foreign value added embedded in Polish exports (over 17 per cent in 2011). The drop in the share of FVA in automotive exports, from 43.5 per cent in 2011 to 39.3 per cent in 2015, probably resulted from the changing structure of the sector’s exports. On the one hand, the significance of passenger cars, which are characterized by higher import intensity, decreased, while there was an increase in the exports of automotive parts. According to OECD data, in 2015 intermediate goods accounted for more than half of the automotive sector’s exports.
In other manufacturing sectors, the share of FVA also decreased in the exports of coke and refined petroleum products (due to the drop in the prices of oil in this period), computers and electronic goods, as well as metals. Meanwhile, there was a rise in the share of FVA in some groups, especially those that were characterized by a relatively lower share of FVA in the preceding years. The share of foreign value added increased, among others, in the group including machinery and electrical equipment, other transport equipment, foodstuffs, as well as textiles and clothing.
In 2015, the most important suppliers of foreign value added embedded in Polish exports included Germany (19.1 per cent), China (9.6 per cent) and Russia (8.4 per cent). In comparison with 2011, there was a decrease in the share of FVA originating in Russia, mainly due to the reduction in fuel prices during this period. In contrast, there was a continued increase in the share of value added originating in China in Polish exports (in 2011, this country accounted for 6 per cent of the FVA contained in Polish exports). The largest share of value added originating in China was found in the exports of computers (24.8 per cent) as well as textiles and clothing (21.1 per cent).
In recent years Polish exports have seen an increase in the share of domestic value added subsequently included in the exports of other countries. In 2015 some 21.5 per cent of the value of Polish exports was used in the exports of other economies (compared with 21.1 per cent in 2011). The main recipients of intermediate goods and services originating in Poland included the exporters from Germany (accounting for 23.8 per cent of the value added used in the exports of other countries), the Czech Republic (7.8 per cent), France (5.1 per cent), Italy (5.0 per cent) and Hungary (4.3 per cent).
Greater importance of services
One characteristic feature of exports of the economies that are significantly involved in international value added chains is also the relatively high share of services — much higher than the traditional foreign trade statistics would indicate. At present, services constitute an important part of the value added included in the exports of industrial processing products. Industrial companies are increasingly utilizing logistics, communication services, business services, etc., in order to facilitate the effective functioning of the global value chains. Additionally, services (such as design, development, marketing, guarantees and after-sales services) help in differentiating, adapting and modernizing products in order to obtain greater value.
The TiVA data indicate that in 2016 the value added created in the service sectors accounted for 53.3 per cent of gross exports from Poland (out of which 40.9 per cent were domestic services and 12.5 were foreign services). In 2016, in Poland services accounted for 34.3 per cent of the exports of industrial processing. This means, that nearly 40 per cent of the value added of the exports of services was related to industrial goods, and 60 per cent came from the service sectors.
The largest part of the value added generated in services and used in manufacturing is attributed to wholesale and retail trade, transport and warehousing, as well as other business services. Financial services are of considerable importance in the case of exports of computers and electronic products.
The structure of exports and imports
The statistics of value added in international trade show which economies are the final recipients of the value added generated in a given country. Hence the differences in the geographical structure of exports and imports according to data taking into account the final use of the value added and according to statistics based on the gross flows of goods and services.
The most important recipient of Polish exports is Germany — both in terms of gross exports statistics and value added statistics. In 2015, Germany accounted for 22.3 per cent of the value of gross Polish exports and for 18.2 per cent of the domestic value added used in foreign final demand.
When it comes to Polish exports to Germany, the Czech Republic, as well as Hungary and Slovakia, their share in Poland’s gross exports is higher than their share in the final demand for value added generated in Poland. This difference is mainly due to the fact that these countries utilize a relatively large part of the value added generated in Poland in their production destined for exports.
On the other hand, the United States, China and the United Kingdom are more important as the final recipients of the value added created in Poland than would be expected given the structure of Polish gross exports. This means that a relatively large part of Polish value added reaches these economies in the exports from other countries.
Germany is also the most important country of origin when it comes to imports to Poland, both in terms of gross statistics and value added statistics. In imports, just like in the case of exports, Germany’s significance is larger when it comes to the gross value of imports (20.7 per cent of the overall value of imports in 2015) than in FVA in the final demand in Poland (18.2 per cent).
Apart from Germany, the Czech Republic and other economies of Central and Southeast Europe also play a greater role in gross imports than in the FVA used in the final demand in Poland. This difference is mainly due to the fact that a relatively large part of the value added imported from these countries is used in Polish exports, and that value added originating from third countries plays a relatively important role in the imports from these countries. In 2015, the value added generated in the Czech Republic accounted for 64 per cent of the value of imports from this country. Domestic value added had an even lower share in the imports from Slovakia and Hungary (61 per cent and 57 per cent of the value of imports, respectively). Value added created in Germany had a relatively high share in the imports from the countries of CEE, which reflects the large role of German corporations in the mutual trade between the Central and Eastern European economies.
Value added generated in the United States has a higher share in the Polish final demand than in the gross imports (in 2015, it accounted for 5.4 per cent of the foreign value added used in the Polish final demand, compared with a 3.4 per cent share in gross imports to Poland). A similar phenomenon, although on a smaller scale, is recorded in the imports from the United Kingdom and Japan. China’s share is similar both in gross imports and in the use of value added. On the one hand, this is the result of the high imports of intermediate goods from China, which are subsequently used in Polish exports. On the other hand, a part of the Chinese value added used in the demand reaches Poland through the imports from other countries.
Wojciech Mroczek is an economic expert at the Department of Statistics of Poland’s central bank, NBP.
The opinions presented in the article are not an expression of the official position of NBP.