Economic Consequences of Trade and Global Value Chain Integration: A Measurement Perspective

Abstract This paper introduces a new approach to measuring global value chains (GVC), crucial for informed policymaking. It features a tripartite classification (backward, forward, and two sided) covering trade and production data. We find that traditional trade-based GVC metrics significantly underestimate global GVC activity, especially in sectors like services and upstream manufacturing, and overstate risks in early trade liberalization stages. Additionally, conventional backward-forward classifications overestimate backward linkages. The paper further applies these measures empirically to assess how GVC participation mediates the impact of demand shocks on domestic output, highlighting both the exposure and stabilizing potential of GVC integration. These new measures are comprehensively available on the World Bank’s WITS platform, providing a key resource for GVC analysis.