Munich Personal RePEc Archive
Global Value Chains and Export
Sophistication in Latin America
Manuel, Flores and Marcel, Vaillant
Departamento de Economía FCS-UdelaR
January 2011
Online at https://mpra.ub.uni-muenchen.de/47310/
MPRA Paper No. 47310, posted 01 Jun 2013 13:39 UTC
Nº
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Volume 15
January-June 2011
Inter-American Development Bank
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Nº
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CONTENTS
T RADE AND THE INTERNATIONAL ORGANIZATION OF PRODUCTION:
PROSPECTS FOR LATIN AMERICA AND THE CARIBBEAN
1
Juan Blyde and Christian Volpe Martincus
A RTICLES
International Fragmentation of Production:
Its Effects on the Labour Market
5
7
Sascha O. Becker and Karolina Ekholm
Regional Production Sharing Networks and Hub-Ness
in Latin America and East Asia:
A Long-Term Perspective
17
Lurong Chen and Philippe De Lombaerde
Global Value Chains and Export Sophistication in Latin America
35
Manuel Flores and Marcel Vaillant
Global Value Chains in the Services Sector:
Business Strategies and Latin American Insertion
Andrés López, Andrés Niembro and Daniela Ramos
49
I NTERVIEWS
61
Panel Interviews about Global Value Chains
Javier Martínez Álvarez (TENARIS)
Daniel Herrero (TOYOTA)
Jorge E. Sequeira Picado (PROCOMER)
63
67
71
S TATISTICS
77
B OOKS AND ARTICLES REVIEWS
87
Power and Plenty Trade, War, and the World Economy
in the Second Millennium
89
Ricardo Carciofi
El procedimiento de opinión consultiva en el Protocolo de Olivos
sobre resolución de Controversias
93
Luis Fernando Castillo Argañarás
Unclogging the Arteries: The Impact of Transport Costs on LatinAmerican and the Caribbean Trade
María M. Supervielle
95
GLOBAL VALUE CHAINS AND
EXPORT SOPHISTICATION IN LATIN AMERICA
MANUEL FLORES
Graduate in Economics, Universidad de la República, Uruguay; and Master candidate in International Economics.
Researcher-professor (2nd year) Economics Department, School of Social Sciences, Universidad de la República.
MARCEL VAILLANT
Doctor in Economics UFSIA University (Antwerpen, Belgium). Professor of International Trade, Department of
Economics, School of Social Sciences, Universidad de la República, Uruguay. Researcher (level III) for Sistema
Nacional de Investigadores de Uruguay.
Nº
32
// Volume 15 // January-June 2011
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The process of globalization has wrought a major change in the international economy, and the scope
of feasible trade between countries has broadened. Global value chains (GVCs) combine participation
by a large number of suppliers across the world in the production of modern manufactured goods
characterized by an acceleration of technical progress. Unlike other developing countries, the Latin
American countries have not played a leading role in this dynamic, with consistently low levels of
export sophistication. This paper evaluates the level of Latin America’s export sophistication from
a dynamic and comparative perspective, using a modern product sophistication indicator. Its results
confirm the starting hypothesis, but reveal different situations and trajectories. An order according to
levels of export sophistication was established in the countries selected: Mexico, Brazil, Argentina,
Colombia, Costa Rica, Uruguay, and Peru. The work takes in the dimension of the dynamic of
the export specialization pattern by product type (e.g. capital goods, primary inputs, processed
inputs, consumer goods) in the period 2000-2007. In products with permanent specialization, which
channel the bulk of exports and reflect the pattern of specialization, Mexico and Brazil are always
around the Latin American average for all types of goods. Mexico reaches levels of sophistication
similar to the OECD average in capital goods, processed inputs, and consumer goods, but with
notably lower levels of sophistication in primary inputs. Brazil is below Mexico except in primary
inputs, where it has an average similar to the OECD countries. In the products that describe the
dynamics (i.e. that lose and gain specialization), the level of sophistication is always higher than
goods with permanent specialization. The order within the countries analyzed does not hold and,
in some cases, even has almost the reverse pattern. In all cases, the countries most notable for
their levels of sophistication in goods that gain specialization are Peru, Uruguay, Costa Rica, and
Colombia. In other words, in the margin, there may be evidence that these countries are participating
in a recent process of export modernization, particularly in processed intermediate goods.
35
Manuel Flores and Marcel Vaillant
INTRODUCTION
Institute for the Integration of Latin America and the Caribbean (IDB-INTAL). All rights reserved.
T
36
he process of globalization has, in recent decades,
wrought a dramatic change in the international
economy. One of the sources of this new dynamic
is the swift process of technical change in the circulation
of information and in the reduction of transport costs
in general. There has been a significant increase in
the levels of trade, and broadening of the basket of
economic activities (goods and services) traded at the
level of the international economy. Furthermore, the
mobility of factors is also important, although this
has an asymmetric pattern concentrated in capital
(physical and financial) and in labor with a high human
capital endowment. From the specialization point of
view, this phenomenon is expressed in the process
of fragmentation of production at the planetary
level. The various stages making up the production
of a given amount of economic activity —whether
in the production of goods and/or services— have
been distributed across the planet through numerous
national jurisdictions in a vast array of organizational
forms or modes of governance that are known,
among other names, as global value chains (GVCs).
This fragmentation of production is the modality that
characterizes the internationalization of the production
processes in many modern manufactured goods, but
it has been spreading to a varied group of economic
activities, notably the service sector.
Unlike other regions (particularly Southeast Asia),
Latin America has not played a leading role in this
recent dynamic. The Latin American economies, which
display low levels of export quality (commodities
with low levels of change, low unit value, and low
differentiation), might be able to modify this pattern if
dynamically inserted in GVCs.
This work aims to contribute to the analysis of some
Latin American countries’ insertion in the process in
recent years. As there are so few precedents in terms
of quantitative approaches to the phenomenon,
we have turned to the empirical identification of
two stylized facts peculiar to insertion in GVCs: the
emergence of new products in the export baskets and
the presence among them of intermediate products. In
addition, a measure of the products’ sophistication is
used to incorporate a notion of quality in the different
subbaskets identified.
After this introduction, the work is structured in
five sections. The Second Section, which defines the
phenomenon of GVCs, illustrates the fundamental
trends in terms of trade structure and discusses the
main literature of international trade that has identified
it (Baldwin, 2006a & 2006b). The Third Section links
GVCs to the structure of exports and analyzes the
dynamic effects of specialization, which suggest that
economies’ capacity for growth is bound up with the
quality of the products they export (their technology
density). The Fourth Section presents and discusses the
results, and the last highlights the major results.
NEW WAVES OF GLOBALIZATION AND GVCS
T
he increased intensity of international trade is
associated with the broadening of the scope of
feasible trade at the international level. Trade
specialization first began with a wave of fragmentation,
signaling the separation between production and
consumption in national markets. This opened up
opportunities for trading and its resulting mutual
benefits. The first type of international trading was
based on a kind of trade determined by the differences
between countries, both in the technology they use to
produce and in the allocation of production factors. The
essential principle is that of comparative advantages
(different comparative costs in non-trade conditions),
characterized by a pronounced interindustrial trade
pattern: countries sell very different types of goods
than the ones they buy.
In the last two decades of last century, new
phenomena emerged in international trade and new
grounds for specialization were identified. The change
is primarily grounded in technologies characterized
by increasing returns to scale, which encourage
specialization and trade in other areas and directions,
and make it necessary to consider aspects such as noncompetitive market structures, product differentiation,
and the existence of trade costs. This last dimension
is where another pronounced trend is processed,
consisting of a sharp drop in trade costs that stimulated
a new geography in the production of manufactured
goods on a global scale.
Trade costs, strictly speaking, include transport costs,
costs associated with adaptation to access to different
Global Value Chains and Export Sophistication in Latin America
markets (including distribution costs), and the cost of
enforcing trade policy. Various different factors have
combined to make a significant reduction in trade costs
possible, most notably the processes of cargo unitization
and increase in the scale of transport, standardization
of production processes on a global scale, and trade
liberalization. The lower the trade costs, the more
relevant small differences become in production costs
between different origins as determinants in the
countries’ capacity to place global activities.
A new trend in international trade incorporating
new patterns of specialization has taken hold during
the last decade. Although the process has been
under way for longer, it has only come to maturity
in the last few years, when the wave of technical
progress has again played a central role. There are
two complementary levels of change fuelling the socalled new reasons for specialization: there has been
intense development of information technologies and
universalization of computer networks; simultaneously
telecommunications costs have fallen drastically.
Production that was traditionally not internationally
traded can now feasibly be turned into a globallytraded commodity. The impact of this is felt especially
keenly in services.
Trade in services was traditionally confined to the
headings of “travel” and “tourism” (consumers move
and purchase services from suppliers from elsewhere
in the world) and to services associated with the
international transport of goods. In recent years, in
association with this new wave of fragmentation in
global economic activity, other commercial services
have grown, most notably corporate services. In
other words, fragmentation not only occurs within
the plant producing the goods, but also within the
Two bodies of original ideas in economics converge
in the new division of labor unfolding at the scale of
the international economy: on the one hand, the link
between division of labor and productivity as discussed
by Adam Smith; on the other, the Ricardian determinants
of countries’ productive and commercial specialization,
which, in modern parlance, is based on relative
productivities in producing goods or performing tasks.
In conventional models of international trade based
on comparative advantages, movements of goods and
factors of production are considered as substitutes
(the effects of the movement of factors is analogous
to those of the movement of products to which these
factors have been applied). Taking into account the
new reasons for trade, the current trends include a high
degree of complementarity between the movement of
factors and trade, particularly with trade in intermediate
goods and task trade. However, the enhanced
mobility of factors of production —a typical feature of
globalization— follows an asymmetric pattern almost
exclusively affecting physical capital through foreign
direct investment (FDI), financial capital, and highly
skilled workers.
To summarize, the distinctive feature of the current
wave of globalization is the widespread increase in the
degree of internationalization of economic activity.
Figure 1 shows growth in trade in “other commercial
services” and “intermediate goods” over the last three
decades. This growth was faster than that of general
trade in goods, which grew sixfold during the reference
period, with trade in inputs and parts growing tenfold
and that of other commercial services (including
corporate services), fourteenfold. These components
associated with the process of fragmentation of
economic activity stood out as the most dynamic
sectors in international trade: whereas in 1980 they
represented 14% of world trade (goods and services),
by 2009 they accounted for a quarter.
1
Another term for the process is “task trade”. A set of
tasks needs to be performed for the production of a certain good
or service. The new technologies allow these tasks to be relocated
internationally and to enjoy the advantages of specialization.
Nº
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The combination of the above trends underpinned
the development of GVCs, which combine
participation by a large number of suppliers across
the world in the production of modern technologyintensive manufactured goods. The greater
buoyancy of trade associated with this new wave
of specialization is intraindustrial in nature (close
substitute goods in production and/or consumption
are traded), both horizontally and —primarily—
vertically. High growth in trade in intermediate goods
is the most prominent stylized fact in the evolution of
late-twentieth-century trade.
management structure that produces corporate
services. This phenomenon has been called building
the “global office”.1
37
Manuel Flores and Marcel Vaillant
Figure
1
EVOLUTION OF GOODS AND OTHER COMMERCIAL SERVICES GLOBAL EXPORTS
1980=100 indexes
1800
1600
1400
1200
1000
800
600
400
200
38
Goods
Inputs & parts
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
Institute for the Integration of Latin America and the Caribbean (IDB-INTAL). All rights reserved.
0
Other commecial services
Source: UNCOMTRADE and WTO.
The new international division of labor involves a
reduction of the importance of the sectors specializing
solely in import substitution (Baldwin, 2006a). It is
difficult today to find sectors solely aligned to domestic
market conditions without, at the same time, being
linked to external conditions (either importing and/or
exporting), and the global sectors that emerge are at
the same time importing and exporting. The above set
of changes, therefore, has a substantial impact on the
political economy of trade policy.
specialization-based strategies enable companies
to maintain their global competitiveness, and any
reversions would involve declines in their productivity
and their capacity to penetrate global markets. A
reversion would, therefore, have an impact on demand
and employment levels contrary to the desired one. In
a recent work for the World Bank, Cattaneo, Gereffi,
& Staritz (2010) have argued that trade has withstood
the crisis rather well and GVCs are partially responsible
for this result.2
This phenomenon has been clearly expressed in
the international crisis and post-crisis periods. The
economic crisis, which fundamentally played itself out
in the industrialized economies, raised new question
marks over the risk of increased protectionism and
a possible process of “deglobalization”. In such an
event, the structural changes seen at the level of
international trade specialization could slow or even
reverse. However, as the global structure of economic
activity registers such high levels of interdependence,
this is extremely difficult to alter. Fragmentation and
2
According to Cattaneo, Gereffi, & Staritz (2010), the
redeployment and localization of world production that has emerged
over the past 20 years are so far-reaching in their scope that they
withstood the tests and temptations of protectionism. World
production is now geographically dispersed, organized by networks
and chains with companies of global size and reach that structure the
process. There seems to be no turning back from the phenomenon.
Global Value Chains and Export Sophistication in Latin America
EVOLUTION OF TRADE BY COMPARATIVE ADVANTAGE
COMPARATIVE ADVANTAGES, EXPORT
SOPHISTICATION, AND GVCS
We chose three types of countries for the analysis
and presentation of the results: (i) selected developed
countries (Germany, the Benelux countries, South
Korea, United States, and Japan); (ii) Brazil, Russia,
India, and China (BRIC), i.e. new emerging countries
with large markets; and (iii) selected Latin American
countries (Argentina, Brazil, Colombia, Costa Rica,
Mexico, Peru, and Uruguay).
If the data by country is analyzed, we can see that,
the weight of exports with advantage in the more
developed countries is lower, at three-quarters of
the total, whereas in the developing countries, this
percentage is usually above 90%, at least in the smaller
countries. Table 1 sets out the percentages for the
selected countries and, as can be seen, there are no
major changes in the period under consideration.
F
Figure
2a
Figure
2b
EVOLUTION OF INTERNATIONAL TRADE
WITH AND WITHOUT RCA
EVOLUTION OF INTERNATIONAL TRADE
WITH AND WITHOUT RCA
Number of products
Value of imports
12000.0
250,000
10000.0
200,000
8000.0
US$ Millons
300,000
150,000
100,000
6000.0
4000.0
50,000
2000.0
0
0
2000
Not Exported
2001
2002
2003
2004
Exported without RCA
2005
2006
2007
Exported with RCA
2000
2001
2002
Exported without RCA
2003
2004
2005
2006
2007
Exported with RCA
Source: Based on trade data from UNCOMTRADE.
Nº
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or its empirical approach to the phenomenon
of GVCs, this work uses the UNCOMTRADE
database for annual FOB exports by country of
origin for the period 2000-2007. Countries registering
no information in one of the eight years have been
eliminated, leaving a total sample of 121 countries.
In terms of products, we used the 2002 6-digit
Harmonized System (HS) classification, and we applied
the criterion of maintaining those products for which
trade was registered in one or other year of the period
analyzed (4,913 products of the existing 5,224). This
produces a database with 594,473 observations.
Figure 2a and Figure 2b represents the evolution of
trade in the 4,913 products across the 121 countries.
There are three types of situations for country-product
combinations in each year: the good is not exported
in that country; it is exported, but without revealed
comparative advantage (RCA); or it is exported with
RCA. As Figure 2a shows, the number of products
in each situation considered remains stable, with
approximately 47% of products not exported, 42% of
products exported without RCA, and just the remaining
11% of products in the HS exported with RCA each
year. While the value of trade has risen steadily over the
past few years, as shown in Figure 2b, the proportion of
the value of exports with RCA is stable, at around 81%.
39
Manuel Flores and Marcel Vaillant
Table
1
EXPORT COMPOSITION CONSIDERING RCA
% of total exports for selected countries, 2000 & 2007
Country
2000
2007
Developed
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2000
2007
Germany
75.4
77.0
Mexico
81.7
81.8
Benelux countries
76.4
77.9
Brazil
81.3
83.7
South Korea
84.5
84.1
Argentina
85.6
84.9
United States
74.9
74.1
Colombia
91.8
91.1
Japan
86.0
82.5
Costa Rica
94.9
93.9
Uruguay
92.3
92.3
Peru
93.7
93.8
BRIC (exc. Brazil)
40
Country
Latin American
China
81.0
84.1
India
88.3
84.9
Russia
91.2
91.3
Source: Based on trade data from UNCOMTRADE.
EVOLUTION OF EXPORT SOPHISTICATION
A methodology has recently been developed
that provides an indicator of the levels of product
sophistication and overcomes the critiques of previous
proposals that registered a high degree of endogeneity.3
The only information used to calculate it is a countryproduct grid each cell of which indicates whether the
country (column) has RCA in the product (row).
An economy with low levels of sophistication is
an economy that specializes in few products (i.e.
it lacks the capacity to produce most goods) that
many countries, also with low levels of sophistication,
specialize in. This is what in common parlance is called
a “banana republic”: specialization in a product that
many other similar economies specialize exclusively in.
A highly sophisticated economy is the opposite: there
is specialization in many products that other also highly
sophisticated countries specialize in. The method of
reflections implements this idea. The Annex Figure
presents the resultant ranking from the calculation of
the indicator of levels of export sophistication for the
3
The new indicator is known as the level of products
sophistication of the “method or reflections” (Hausmann &
Hidalgo, 2009).
121 countries considered in each year of the period
2000-2007.4
As can be seen, the countries of the region display
relative stability in export sophistication. Among the
selected countries, Costa Rica and, to a lesser extent,
Colombia have achieved clearer improvement whereas
Argentina and, to a lesser extent, Brazil have lost
sophistication. This, together with the decline in the
Indian and Russian baskets, accounts for a simplification
of three of the BRICs’ export baskets. The evolution
of China’s exports contrasts with this pattern, being
characterized by a marked improvement.
In the developed countries, there is the usual stability
in their relative position, with the exception of South
Korea, which belongs to the group of countries with
greatest export sophistication. 2007 was notable for
the progress that several of the region’s countries (e.g.
Uruguay, Costa Rica, Colombia, Peru, and Argentina)
made, despite a fall in all cases over the previous years.
If this evolution were analyzed by clustering
countries, Argentina’s decline would have moved it
4
For a detailed description of the methodology, see Flores
& Vaillant (2011).
Global Value Chains and Export Sophistication in Latin America
from the best-positioned group in the region (along
with Mexico and Brazil) to the top of the group with
medium sophistication (along with Colombia, Costa
Rica, Uruguay, and Chile). Peru remained stable
throughout the period, and, alongside Bolivia and
Ecuador, formed part of the group with least export
sophistication in the South American region.5
EVALUATING THE CHANGES
For the purposes of this work, we wish to investigate
the dynamics through which countries have acquired
advantages in certain products in the period analyzed.
While the indicator of the method of reflections
considers exports with RCA, and brings together
products exported without RCA and products not
exported under a single category, we propose here to
differentiate the latter two situations.
As shown in Table 2, observations corresponding
to country-product cases of no exportation stand at
45.2% in the initial period, and 38.4% maintains this
feature in the final period (stable not exported). For
exports without RCA, the figure is 36.9% in the initial
period, 31.1% of which maintain the characteristic.
Finally, the cases of export with RCA were 9.5% in the
initial period and 7.2% maintained such a condition.
5
It should be remembered that Venezuela is one of the
countries that have been excluded due to a lack of information for
2007 in the UNCOMTRADE database.
6
The dominance criterion in the four years of the subperiod
considers dominant any situation arising in a number of years strictly
higher than any of the possible alternative situations.
Table 2 (Panel A) shows that the largest number
of products that change situation do so either from a
situation of non-dominance (ND) to being exported
without advantage (NA), or from not being exported
(NE) to a non-dominant (ND) behavior or to being
exported without advantage (NA). Panels B and C
measure the value coverage of exports in the initial
and final subperiods. The table allows us to see the
distribution of different types of traffic identified, the
importance of which can be quantified either in the
initial or final period. It is interesting to compare the
distribution of importance in the initial classification as
measured by exports in the initial period against the
distribution in the final period as measured by exports
in the final period (values highlighted in bold in Panels
B and C).
Table 2 identifies 16 patterns in the export
specialization dynamic. Five categories can be identified
in order to simplify the variable and consider the most
relevant patterns: those that have an advantage in the
initial and final periods (A,A); those that acquire some
degree of specialization (NE,A), (ND,A), (NA,A), plus
(NE,NA) and (ND,NA); those that lose specialization
(A,NE), (A,ND), (A,NA), plus (NA,ND) and (NA,NE);
those exported without specialization (NA,NA) plus
(ND,ND); (NE,ND), (ND;NE); and last those that are
never exported (NE,NE).
Table 3 presents the five patterns of the dynamic
and products are further distinguished by type of good
(capital goods, primary inputs, processed inputs, and
consumer goods).8
7
These figures do not coincide exactly with the ones
presented above because, in this case, the products have been
classified in light of the situation prevailing in each subperiod; in the
four years comprising it as a whole, however, there may arise nondominant situations. So, for example, the value of positive trade seen
in products classified as non-exported corresponds to exports in a year
of products that register no exports in most years of the subperiod.
8
We have used the classification by broad economic
categories (BEC).
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As a way of incorporating a dynamic view, the analysis
is divided into in an initial subperiod (2000-2003) and
a final subperiod (2004-2007). Four possible scenarios
for product-country observation are identified in each
subperiod, paying attention to a dominance criterion
in each four-year group: no dominant behavior (ND);
dominance of periods of no exportation (NE); dominance
of periods of export with no RCA (NA); and dominance
of periods of export with RCA (A).6 With these elements,
it is possible to simply appreciate the relevance of the
different evolutionary patterns of countries’ export
structures: both the stable behavior across subperiods
and the changes that reflect a country’s situations of
gain or loss of specialization in a product.
The weight of stable cases (exports in 2004-2007
faced a situation similar to that of 2000-2003) reaches
78% (values highlighted in the diagonal of each panel).
These products channeled 88% of the value of world
trade in the initial period and 86.5% of it in the final
period.7 However, Table 2’s interest does not lie in stable
situations, but in its description of the changing situation.
41
Manuel Flores and Marcel Vaillant
Table
2
EVOLUTION OF EXPORTS BY SITUATION BETWEEN 2000-2003 & 2004-2007
% of total products and of world export value
A) Distribution of total of products situations
NE
ND
NA
A
Total
No Exportation (NE)
38.4
3.3
3.2
0.3
45.2
No Dominance (ND)
2.7
1.4
3.4
0.8
8.4
No Advantage (NA)
1.8
2.6
31.1
1.4
36.9
Ini \ Fin
Advantage (A)
0.2
0.7
1.4
7.2
9.5
Total
43.2
8.1
39.0
9.7
100.0
NE
ND
NA
A
Total
No Exportation (NE)
0.03
0.00
0.07
0.08
0.20
No Dominance (ND)
0.15
0.34
1.84
2.04
4.37
No Advantage (NA)
0.03
1.06
15.42
1.58
18.09
Advantage (A)
0.15
2.17
2.78
72.24
77.35
Total
0.4
3.6
20.1
75.9
100.0
ND
NA
A
Total
B) Distribution of products in exports in 2000-2003
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Ini \ Fin
42
C) Distribution of products in exports in 2004-2007
Ini \ Fin
NE
No Exportation (NE)
0.02
0.05
0.17
0.49
0.7
No Dominance (ND)
0.01
0.31
1.37
3.41
5.1
No Advantage (NA)
0.01
1.82
15.00
3.41
20.2
Advantage (A)
0.02
1.38
1.32
71.21
73.9
Total
0.06
3.56
17.86
78.52
100.0
Source: Based on data from UNCOMTRADE.
70% of world trade is in products where the countries’
advantages remain stable in the period. The weight of
this situation for capital goods is lower (62%), which is
perhaps an indicator that the pace of technical progress
is faster in these types of goods. It is also apparent that
almost 10% of trade in 2007 was in products where
the countries recently acquired specialization (these
products accounted for less than 5% of world exports
in 2000). Among the types of goods comprising this
set of dynamic products, primary inputs stand out,
representing 18% of exports of products where there is
a gain in specialization when they are worth just 8.7%
of the value of total exports.
Figure 3 evaluates the level of sophistication by
type of good and dynamic.9 The highest degree of
9
The level of sophistication was measured at iteration 10
from indicator Kp (Hausmann & HIdalgo, 2009), and the order was
then taken to percentiles. The averages of the percentiles by type
of good and pattern of dynamic are presented. This simple average
of the levels of sophistication can be seen to have an extremely
high correlation (99.1%) with the country index used in Section
Comparative Advantages, Export Sophistication, and GVCs. Using
the sophistication of each product has the advantage of allowing
us to work with subbaskets of the group of products exported by
each country.
Global Value Chains and Export Sophistication in Latin America
Table
3
DYNAMICS OF EXPORTS AND TYPE OF GOOD
As %
A) Proportion of number of products exported in 2007
(NE,NE)
No Spec.
Specialization
Lose
Gain
(V,V)
Total
Capital goods
0,6
9,7
1,0
2,2
1,5
14,9
Primary inputs
0,3
3,0
0,5
1,0
1,0
5,8
Processed inputs
2,3
30,1
3,5
7,6
6,4
49,9
Consumer goods
1,1
17,7
2,2
4,3
4,1
29,3
Total
4,4
60,5
7,1
15,1
12,9
100,0
(V,V)
Total
B) Proportion of value of exports in 2007
(NE,NE)
No Spec.
Specialization
Lose
Gain
0,0
3,9
1,1
2,6
12,5
20,1
0,0
1,1
0,3
1,7
5,6
8,7
Processed inputs
0,0
7,6
2,3
3,6
34,8
48,2
Consumer goods
0,0
3,6
1,0
1,8
16,7
23,0
Total
0,1
16,2
4,7
9,5
69,6
100,0
Source: Based on data from UNCOMTRADE.
sophistication is seen in capital goods, followed by
processed inputs, then consumer goods, and last,
primary goods. Product-country combinations that
acquire advantage at the global level do so by increasing
levels of sophistication in relation to the group of
products permanently exported with an advantage.
Figure 4 shows the same structure, but in four regions:
OECD (excluding Mexico and Chile); China; BRIC
(excluding China), and Latin America (excluding Brazil).
It is worth noting that the order by type of good holds
good across all country clusters (capital, processed goods,
consumption, and intermediate goods). In products
with advantage, the OECD countries and China are
undifferentiated in levels of sophistication. Whereas the
OECD is somewhat better-off in terms of capital goods,
China has higher levels of sophistication in primary
products and consumption. They are extremely alike
in terms of processed products. The other three BRIC
countries always register lower levels of sophistication
than China, and Latin America (excluding Brazil) always
shows lower figures than the other regions.
In terms of the dynamic, products where specialization
is acquired have a similar level of sophistication across
country clusters in all types of goods. This implies that the
difference of sophistication among new and permanent
products will have precisely the opposite order to the
level of sophistication by region and type of good.
Latin America is the region with the lowest levels of
sophistication, but where new products with advantage
have a major difference with the traditional pattern.
The situation in Latin America is heterogeneous, as
noted in previous sections. In products with permanent
specialization, which channel the bulk of exports and
reflect the pattern of specialization, Mexico and Brazil
are always above the Latin American average in all
types of goods (Figure 5). Mexico reaches levels of
sophistication similar to the OECD average in capital
Nº
32
// Volume 15 // January-June 2011
@ journal
Institute for the Integration of Latin America and the Caribbean (IDB-INTAL). All rights reserved.
Capital goods
Primary inputs
43
Manuel Flores and Marcel Vaillant
Figure
3
SOPHISTICATION (2007) BY TYPE OF GOOD AND DYNAMICS (2000-2007)
Total global exports
70
60
50
40
30
20
Institute for the Integration of Latin America and the Caribbean (IDB-INTAL). All rights reserved.
10
44
0
Capital Goods
Primary Inputs
Lose Specialization
Processed Inputs
Gain Specialization
Consumption Goods
Permanent Advantage
Note: Includes all 121 countries and 4913 products.
Source: Based on data from UNCOMTRADE.
goods, processed inputs, and consumer goods, and
has notably lower levels of sophistication in primary
products (Figure 4 and Figure 5). Brazil is below Mexico
except in primary goods, where it registers an average
similar to the OECD countries.
Keeping the spotlight on products with permanent
specialization, the order registered in intermediate
processed goods is the same as the global order (i.e. the
average of sophistication of the basket of products). In
this type of inputs, third place in terms of sophistication
is held by Argentina, followed by Colombia, Costa
Rica, Uruguay, and Peru. This order has variants in
the other types of goods, however. In capital goods,
third place is held by Costa Rica, and Uruguay is in last
place. In primary goods, Uruguay comes second, very
close to Brazil and ahead of Mexico, while Peru comes
last. Finally, in consumer goods, third place is held by
Colombia, while Argentina and Peru come second to
last and last respectively.
In products that describe the dynamic (i.e. that lose
and gain specialization), the levels of sophistication
are always higher than goods with permanent
specialization. The order among the countries analyzed
does not hold good and is even almost the reverse in
some cases (see Figure 5 for capital goods in cases that
gain specialization). In every case, the countries that
stand out for their levels of sophistication in goods
that gain specialization are Peru, Uruguay, Costa Rica,
and Colombia. In other words, there is evidence in
the margin that these countries are participating in a
recent modernization process in their export baskets,
particularly, in intermediate processed goods.
Global Value Chains and Export Sophistication in Latin America
Figure
4
SOPHISTICATION (2007) BY TYPE OF GOOD AND DYNAMICS (2000-2007)
Groups of countries
b) China
a) OECD
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
Capital
Goods
Primary
Inputs
Lose Specialization
Processed
Inputs
Gain Specialization
Capital
Goods
Consumption
Goods
Primary
Inputs
Lose Specialization
Permanent Advantage
c) Brazil, Russia & India
Processed
Inputs
Gain Specialization
Consumption
Goods
Permanent Advantage
d) Latin America
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
Capital
Goods
Lose Specialization
Primary
Inputs
Processed
Inputs
Gain Specialization
Consumption
Goods
Permanent Advantage
Capital
Goods
Primary
Inputs
Lose Specialization
Processed
Inputs
Gain Specialization
Consumption
Goods
Permanent Advantage
Source: Based on data from UNCOMTRADE.
Nº
32
// Volume 15 // January-June 2011
@ journal
Institute for the Integration of Latin America and the Caribbean (IDB-INTAL). All rights reserved.
0
45
Manuel Flores and Marcel Vaillant
Figure
5
SOPHISTICATION (2007) BY TYPE OF GOOD AND DYNAMICS (2000-2007)
Selected countries in Latin America
80
70
60
50
40
30
20
Institute for the Integration of Latin America and the Caribbean (IDB-INTAL). All rights reserved.
Capital Goods
46
Primary Inputs
Lose Specialization
Processed Inputs
Gain Specialization
PER
CRI
URY
COL
BRA
ARG
PER
MEX
CRI
URY
COL
BRA
ARG
PER
MEX
CRI
URY
COL
BRA
ARG
PER
MEX
CRI
URY
COL
BRA
ARG
0
MEX
10
Consumption Goods
Permanent Advantage
Source: Based on data from UNCOMTRADE.
CONCLUSIONS
8
0% of the value of world exports is accounted
for by exporting countries with a comparative
advantage. Developing countries tend to have
an even higher proportion of exports, which allows
us to speculate that they have greater stability in their
patterns of specialization.
The pattern of specialization is evaluated in terms of
the performance displayed by the countries in their levels
of export sophistication (estimated by the method of
reflections). The Latin American countries do not do
well in this indicator, which shows a low level of exports
sophistication. A group of countries was selected that
show relatively stable evolution in these indicators over
the period considered, allowing us to differentiate cases
such as Brazil, which is close to the lower OECD levels,
and Peru, which has the lowest levels of sophistication
in the region. Though minor, the changes show that
Costa Rica in first place and Colombia in second show
an improvement, whereas Argentina, and to a lesser
extent Brazil, lose export sophistication.
The mode in which the region’s economies are inserted
in GVCs can be a determinant both in their recent
developments and their prospects of modifying their
role as exporters of goods with low levels of change,
low unit value, and low differentiation (commodities).
The development of GVCs is associated with relocation
of production and is reflected in participating countries’
beginning to export new products, which therefore
requires the incorporation of a vision of the dynamic
of the pattern of specialization. According to the
methodology set forth in this work, the weight of new
products accounted for 10% of world trade in 2007.
Given that a strict criterion is being applied that takes
into consideration new sectors, such as those emerging
between 2004 and 2007, the importance of the
phenomenon in the reference period is plain to see.
To round off the analysis, a third perspective is
incorporated by product type (capital goods, primary
inputs, processed inputs, and consumer goods),
which captures a second fact: the fragmentation of
production. It is interesting here to analyze processed
inputs and, possibly, primary inputs among the new
Global Value Chains and Export Sophistication in Latin America
products being traded. Trade in primary inputs in the
countries selected accounts for a significant percentage
of the group of products in which the countries have
recently gained specialization.
The final analysis was done by crossing the dynamic
of the pattern of specialization (lose, gain, and maintain
specialization with advantage) and the type of product,
and the level of sophistication of each of these twelve
subbaskets was evaluated.
In the case of products with advantage, China reaches
levels of sophistication similar to the OECD average
across all categories, followed by BRIC, and Latin
America (whose performance is similar to the rest of the
world). The order of levels of sophistication by product
type is similar across all regions: capital goods, processed
inputs, consumer goods, and, last, primary inputs.
However, the products in which specialization is
acquired have a similar level of sophistication across
clusters of countries in all types of goods, and the
same is seen across the Latin American countries. This
implies that the difference in sophistication between
new and permanent products will have exactly the
opposite order to levels of sophistication by region
and type of good. Latin America is the region with the
lowest sophistication, but where new products with
advantage are more differentiated from the traditional
pattern. The countries that stand out most for their
levels of sophistication in goods that gain specialization
are Peru, Uruguay, Costa Rica, and Colombia. In other
words, there is evidence in the margin that these
countries are participating in a recent modernization
of their export baskets, particularly where intermediate
processed goods are concerned.u
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CATTANEO, O., G. GEREFFI, & C. STARITZ. 2010. Global Value Chains in a Postcrisis World. Washington, DC: The
World Bank.
FLORES, M. & M. VAILLANT. 2011. “Cadenas globales de valor y sofisticación de la canasta de exportación en
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HAUSMANN, R., J. HWANG & D. RODRIK. 2007. “What you exports Matters”, Journal of Economic Growth, 12(1),
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HAUSMANN, R. & C. HIDALGO. 2009. “The Building Blocks of Economic Complexity”, PNAS, 106(26), pp 10575-10575.
HIDALGO, C. A., B. KLINGER, A. L. BARABÁSI & R. HAUSMANN. 2007. “The Product Space Conditions the Development
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HIRSCHMAN, A. 1958. The Strategy of Economic Development. New Haven, Conn.: Yale Press.
KRUGMAN, P. 1988. “La nueva teoría del comercio internacional y los países menos desarrollados”, El Trimestre
Económico, LV(217). January-March.
Nº
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// Volume 15 // January-June 2011
@ journal
Institute for the Integration of Latin America and the Caribbean (IDB-INTAL). All rights reserved.
The results show that product-country combinations
acquire advantage by increasing levels of sophistication
in relation to the group of products permanently
exported with advantage. This can be seen in both
world trade and the different regions analyzed.
Significant heterogeneity among the Latin American
cases selected is seen when we look at the sophistication
of the subbasket of products exported with permanent
advantage. This order confirms the above order at the
global level.
47
Manuel Flores and Marcel Vaillant
Annex
Figure
EXPORT SOPHISTICATION - REFLEX METHOD (KC,18)
2000 – 2007
Institute for the Integration of Latin America and the Caribbean (IDB-INTAL). All rights reserved.
2000
48
JPN
CHE
DEU
SWE
FIN
GBR
USA
AUT
MSR
SGP
TWN
FRA
KOR
BLX
CZE
IRL
RUS
NLD
CAN
NOR
SVN
ITA
ARM
ISR
DNK
UKR
HKG
ESP
HUN
SVK
BHS
MEX
MYS
BRA
CHN
SAU
MLT
POL
BLR
CPV
MYT
GEO
IND
JOR
NZL
ZAF
ARG
EST
HRV
LVA
AUS
LTU
ROM
BRB
PYF
THA
KAZ
PRT
BGR
ISL
TUR
AZE
CHL
COL
GRC
URY
IDN
MKD
CYP
KGZ
PHL
BHR
MDA
DZA
KNA
CRI
EGY
SLV
COM
SWZ
TTO
BWA
OMN
TUN
GTM
NCL
ALB
QAT
KEN
MUS
SEN
BOL
NAM
PER
GRL
JAM
MAR
ZMB
PRY
PAN
CIV
MDG
GMB
NIC
HND
MLI
MNG
NER
DMA
ECU
MOZ
MWI
SYC
UGA
TZA
BLZ
GUY
STP
BDI
MDV
ETH
2001
JPN
CHE
DEU
SWE
FIN
GBR
USA
TWN
AUT
KOR
SGP
BLX
CZE
FRA
MSR
IRL
SVN
NLD
RUS
ITA
ISR
CAN
SVK
HKG
MYS
NOR
UKR
MEX
DNK
HUN
ESP
CHN
POL
ARM
BRA
BLR
BHS
MLT
EST
GEO
MYT
IND
HRV
SAU
LVA
BRB
ZAF
ARG
JOR
NZL
PRT
ROM
BGR
THA
LTU
TUR
AUS
KAZ
KNA
GRC
AZE
COM
URY
COL
IDN
ISL
PHL
MKD
PYF
CYP
CHL
TUN
CRI
MDA
SLV
TTO
KGZ
GTM
MUS
SWZ
DZA
BHR
EGY
GRL
ALB
OMN
SEN
PER
NCL
PAN
KEN
MAR
GMB
ZMB
BWA
NAM
BOL
JAM
NIC
ECU
HND
DMA
MNG
PRY
CPV
CIV
QAT
MDG
SYC
UGA
MWI
GUY
MLI
MOZ
TZA
BDI
NER
MDV
ETH
BLZ
STP
Source: Based on trade data from UNCOMTRADE.
2002
JPN
CHE
DEU
SWE
FIN
GBR
USA
AUT
TWN
KOR
MSR
CZE
SGP
FRA
BLX
IRL
RUS
SVN
NLD
ITA
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SVK
CAN
DNK
HUN
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MEX
MLT
BLR
POL
UKR
BHS
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CHN
ARM
BRA
EST
LVA
HRV
NZL
IND
ZAF
GEO
PRT
THA
ARG
BRB
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LTU
ROM
SAU
AUS
BGR
TUR
GRC
CYP
ISL
PHL
COL
KNA
MKD
PYF
GRL
IDN
URY
CHL
SLV
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TUN
BHR
MDA
CRI
KAZ
OMN
KGZ
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NAM
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KEN
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2003
JPN
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2004
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GUY
2005
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USA
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SVN
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POL
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THA
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2006
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AUT
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FRA
HKG
HUN
ITA
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CHN
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NOR
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MAR
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HND
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DZA
KEN
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