The globalization of production International sourcing, through independent suppliers and own affiliates, has increased in recent decades, with the share of foreign inputs rising from 18 percent in 1995 to 24 percent in 2011 (figure 1).<\/p>\n Figure 1: World gross exports by share of domestic and foreign value added, 1995-2011 Regional interdependencies Figure 2: Sources of the shares of foreign value added in gross exports, 1995 and 2011 New technologies, such as 3D printing, are expected to continue to reshape GVCs in the future and reduce the importance of distance as a factor explaining the location of suppliers.<\/p>\n Country level differences Figure 3. Share of foreign value added in gross exports, selected countries, 1995 and 2011<\/strong><\/p>\n Where does Canada fit in? In 1995, Canada\u2019s overall GVC participation score, at 35 percent, was only slightly below the sample average of 38 percent (figure 4). By 2011, however, although Canada\u2019s overall score had increased to 42 percent, the average had increased even more, to 51 percent. Also notice that both the US and Mexico also slid down the ranks too, which demonstrates the NAFTA countries more generally have failed to keep pace with the stronger GVC developments in Asia and Eastern Europe. Figure 4:\u00ad Global value chain participation index <\/strong><\/p>\n 1995<\/strong><\/p>\n In contrast, Canada\u2019s forward GVC participation score started out well below the sample average in 1995, perhaps related to the fact that the US is the first and final destination for a large share of Canada\u2019s exports.<\/p>\n By 2011, Canada had made up some of the gap \u2014 due in part to sectoral shifts away from exports of motor vehicles and toward natural resources and mining activities, which are more often exported subsequently to third countries. Indeed, Canada\u2019s GVC participation varies quite substantially across industries. In 2011, mining had the highest forward GVC participation score, reflecting the later use in value chains of Canada\u2019s natural resources in the exports of other countries. In contrast, manufacturing industries \u2014 particularly motor vehicles, due to integrated North American supply chains, and basic metals \u2014 show higher backward participation scores, since they use significant foreign intermediates in their exports.<\/p>\n A key \u2014 and perhaps surprising \u2014 finding of the chapter is that the large changes in the industrial composition of Canada\u2019s exports had only a minor impact on its overall GVC participation (although it affected the relative importance of the backward and forward participation scores).<\/p>\n The authors found this by holding the weight of each industry constant in total exports and superimposing the 1995 composition on the 2011 results. Had there been no industrial change over this period, Canada\u2019s total GVC participation rate would have been slightly higher in 2011: 44 percent, rather than the 42 percent observed, but would still remain well below the average.<\/p>\n Figure 5: Canada\u2019s global value chain participation, with and without industrial change<\/strong><\/p>\n Policy implications Governments are looking for new ways to position economic activities in these global production networks with a view to safeguarding growth and employment at home. Defensive policies to protect domestic companies can be counterproductive. Instead, the focus should be on strengthening production factors that are \u201csticky\u201d and less likely to cross borders. Relevant policies include investing in people and skills, high-quality infrastructure and encouraging strong industry-university linkages and forms of tacit knowledge. The quality of institutions and government also plays a role, and can be a major factor in firms\u2019 decisions to invest in a country. In addition, policies should help ease adjustment costs for workers struggling with transitions to retool and find new jobs.<\/p>\n Finally, GVCs are the heart of the discussion on the future of manufacturing in developed economies. Thus far, OECD countries seem to have specialized more in upstream activities, where the most value is often created, such as R&D, design, marketing, branding or customer service, while emerging economies specialize more in manufacturing and assembly.<\/p>\n Conclusions Canada has increased its overall participation in GVCs over the past two decades, but not by as much as other parts of the world \u2014 particularly Asia and Eastern Europe \u2014 which partly reflects Canada\u2019s relatively mature trade linkages with the United States, already well established by the mid-1990s.<\/p>\n Canada\u2019s exports have also shifted away from manufacturing and motor vehicles and toward resources and mining, which are less reliant on foreign content. Importantly, however, this shift had only a minor impact on Canada\u2019s overall<\/em> GVC participation, and the strong rise in the prices of natural resources over the 1995-2011 period does not, on its own, seem to explain why Canada is falling behind other countries.<\/p>\n Changes are underway in the positioning of Canada auto sector within the value chain, and compared with other OECD countries. Canada has a lower-than-average services content in its exports in most industries \u2014 particularly in business services, where there seems to be considerable room for growth.<\/p>\n The authors\u2019 findings underscore the interconnected nature of the global economy and Canada\u2019s role in it, and dependence on it. Nearly one-fifth of all employment in Canada (roughly 3.5 million jobs) is devoted to producing goods and services for foreign consumers, and about 75 percent of the value-added exports associated with these jobs is attributable to North American consumers (roughly 2.5 million jobs).<\/p>\n In this context of increasingly interrelated imports and exports, protectionist policies are ultimately counterproductive. For Canadian policy-makers looking to boost jobs and growth in the domestic market, the policy focus should be on strengthening production factors that are less likely to cross borders. High-value-added activities such as R&D, product design and customer service are particularly attractive. Over the long run, policies that focus on maintaining a highly skilled workforce and high-quality, trade-related infrastructure will help encourage international investment in, and trade with, Canada.<\/p>\n I encourage you to read the full chapter here<\/a>, which is part of the IRPP’s forthcoming Canadian trade policy volume<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":" In recent decades, lower trade costs and technological innovations have allowed companies to split their production processes into different stages and perform them in different countries. As a result, world trade and production have become increasingly structured around \u201cglobal value chains\u201d (GVCs), which are especially prevalent in high-tech industries such as electronics, motor vehicles and […]<\/p>\n","protected":false},"author":913,"featured_media":293058,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","ep_exclude_from_search":false,"footnotes":""},"categories":[],"tags":[],"article-status":[],"irpp-category":[],"section":[],"irpp-tag":[],"class_list":["post-293070","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry"],"acf":[],"yoast_head":"\n
\n<\/strong>The value of gross exports of goods and services from 1995 to 2011 (the period covered in the newly-updated OECD-WTO Trade in Value-Added, TiVA database) can be decomposed into three parts:<\/p>\n\n
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\n![\"OECD_blog_Fig_1\"](\"https:\/\/policyoptions.irpp.org\/wp-content\/uploads\/2025\/08\/OECD_blog_Fig_1-1.png\")
<\/a>Example of value chains
\n<\/strong>In practice, production processes can involve a mix of value chain dynamics, including:<\/p>\n\n
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\n<\/strong>GVCs can be considered regional in nature, structured around \u201cFactory Asia\u201d, \u201cFactory North America\u201d and \u201cFactory Europe\u201d. But with changing regional dynamics, they\u2019re increasingly becoming global in scope. The share of value-added in gross exports coming from outside<\/em> these regions has increased and the share from inside <\/em>the region has fallen (figure 2).<\/p>\n
\n<\/strong>(percent)<\/p>\n![\"OECD_blog_Fig_2\"](\"https:\/\/policyoptions.irpp.org\/wp-content\/uploads\/2025\/08\/OECD_blog_Fig_2-2.png\")
<\/a><\/p>\n\n
\n<\/strong>The authors use a rich dataset covering 39 advanced and key emerging market countries. The results show that countries differ greatly in the share of foreign value added in their gross exports, related to such factors as the size of their economy, natural resource endowments, patterns of specialization and geography (figure 3).<\/p>\n![\"OECD_blog_Fig_3\"](\"https:\/\/policyoptions.irpp.org\/wp-content\/uploads\/2025\/08\/OECD_blog_Fig_3.png\")
<\/a><\/p>\n\n
\n<\/strong>Countries participate in GVCs both as users of foreign inputs and as suppliers of intermediate goods and services used in other countries\u2019 exports. The GVC participation index measures the share of a country\u2019s exports that are part of GVCs due either to backward<\/em> links (looking back in the value chain and estimating the foreign value added contained in a country\u2019s exports) or to forward<\/em> links (looking ahead and measuring the domestic value added contained in other countries\u2019 exports).<\/p>\n
\n<\/strong><\/p>\n![\"OECD_blog_Fig_4a\"](\"https:\/\/policyoptions.irpp.org\/wp-content\/uploads\/2025\/08\/OECD_blog_Fig_4a.png\")
<\/a>2011<\/strong><\/p>\n![\"OECD_blog_Fig_4b\"](\"https:\/\/policyoptions.irpp.org\/wp-content\/uploads\/2025\/08\/OECD_blog_Fig_4b.png\")
<\/a>Breaking down Canada\u2019s results into their two components, backward and forward participation, the country\u2019s backward participation score \u2014 the foreign content in its exports \u2014 was essentially stable over the 1995-2011 period, even as other countries increasingly were using imports to produce their exports. This difference might reflect, in part, the relatively mature value chains that already existed between Canada and the US in the mid-1990s related to the implementation of the Auto Pact in 1965 and the Canada-US FTA in 1989.<\/p>\n![\"OECD_blog_Fig_5\"](\"https:\/\/policyoptions.irpp.org\/wp-content\/uploads\/2025\/08\/OECD_blog_Fig_5-1.png\")
<\/a>In addition, the overall foreign content of Canada\u2019s motor vehicle exports increased between 1995 and 2011; and there were also notable changes in the origin of our foreign inputs (table 1).<\/p>\n![\"OECD_blog_Table_1\"](\"https:\/\/policyoptions.irpp.org\/wp-content\/uploads\/2025\/08\/OECD_blog_Table_1.png\")
<\/a>The shares of North American suppliers fell significantly, while Asian and European suppliers made considerable gains. This trend reflects the greater fragmentation of value chains for transportation equipment, but also suggests changes in the relative positioning of Canada\u2019s automotive industry within these chains.<\/p>\n
\n<\/strong>Given the importance of country-specific factors, there are few one-size-fits-all policy prescriptions, but the authors recommend several general policy directions based on their analysis:<\/p>\n\n
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\n<\/strong>New evidence from the OECD\/WTO Trade in Value-Added database shows that production processes and networks have become increasingly international in recent decades. Firms now often import in order to export, and so the share of foreign value added in gross exports has increased, as GVCs are becoming longer and more sophisticated. At the same time, services play a larger role in value chains than conveyed by conventional gross trade statistics.<\/p>\n