World Input-Output Database

World Input-Output Database (WIOD):

Construction, Challenges and Applications

Abdul Azeez Erumbana

Reitze Goumaa

Bart Losa,b

Robert Stehrerc

Umed Temurshoevb

Marcel Timmer a,b,*

Gaaitzen de Vriesa

NB The results in this paper are preliminary and should not be quoted

Paper for the 19th International Input-Output Conference

(Alexandria USA, June 13-17, 2011)

Affiliations

a Groningen Growth and Development Centre, University of Groningen

b European Network for Input-Output Studies, University of Groningen

c The Vienna Institute for International Economic Studies (wiiw)

* Corresponding Author

Marcel P. Timmer

Groningen Growth and Development Centre

Faculty of Economics and Business

University of Groningen

The Netherlands

Note: This paper is a revised version of the paper prepared for Thirty-first General IARIW conference Sankt Gallen, August, 2010, Plenary Session 3: The Impact of Globalization

Acknowledgements:

The construction of the World Input-Output Database is one of the activities in the WIOD-project. This project is funded by the European Commission, Research Directorate General as part of the 7th Framework Programme, Theme 8: Socio-Economic Sciences and Humanities, grant Agreement no: 225 281. We would like to thank the other participants in the project for their helpful comments and suggestions. More information on the WIOD-project can be found at

Abstract

This paper describes the construction and contents of a new database to analyze the effects of globalization on socio-economic and environmental trends at the industry, country and global level. This database called WIOD (World Input-Output Database) is constructed by linking national supply and use tables with statistics on international trade. In this way it is feasible to estimate e.g. the use of Chinese paint in German cars bought by Japanese consumers. This international input-output table is firmly grounded in national accounts statistics and complemented with additional socio-economic accounts on the use of various types of labour (by skill level) and capital (ICT and non-ICT assets). It also includes various environmental indicators such as energy use and greenhouse-gas emission. The database will include the major economies in the world covering about 90% of world GDP and provide time series from 1995 onwards. We discuss the methods and datasources used in construction. In addition we give illustrative applications in the area of outsourcing and its impact on global trends in trade and emissions of greenhouse gases. The database is currently being constructed by a consortium of eleven research institutes in the WIOD-project ( and the paper reports on the first phase of this project.

1. Introduction

The ongoing process of globalisation puts new challenges to the study of economic growth and development around the world. As finance, people, goods and services increasingly flow from one country to another, international interdependencies strongly impact on the development space of individual countries. Changing patterns of world trade drive income distributions across and within regions, and shift environmental burdens of production and consumption. This is manifest in the mushrooming of global production networks in which various stages of the production process take place at distant geographical areas. Intermediate goods and services are heavily traded across borders, driven by the opportunities offered by advances in information and communication technologies. A hard-disk drive manufactured in Thailand typically consists of inputs sourced from over fifteen different countries. A car in Spain is assembled out of imports from all around the world. This globalisation process provides new opportunities for a global division of labour and production, increasing employment opportunities and growth. On the other hand, shifting trade and production patterns might have adverse effects on local and global distributions of income and natural resources. For example, the pollution haven hypothesis maintains that rich countries are able to contain the environmental pressure of domestic production only by relocating pollution-intensive industries. This would lead to an increasing divergence between the actual use of resources in local production and the use of resources implicit in local consumption.

Globalisation also puts new demands on statistical information for research and policy analysis. A thorough analysis of globalisation and its effects on the economy and environment relies heavily on extensive monitoring of international trade. Existing international trade statistics provide information on the value of goods and services traded, but convey little about the value added in production by the exporting country. The latter though is crucial for an analysis of e.g. income, employment and environmental effects of local production. This type of information however is currently not being collected in statistical systems and researchers have to rely on datasets constructed outside the international statistical systems. Various alternative datasets have been built in the past of which the GTAP database is the most widely known and used. However, all these databases provide only one or a limited amount of benchmark years and do not offer an analysis of developments over time. In this paper we present a new database called the World Input-Output Database (WIOD) that aims to fill this gap. The WIOD will provide a time-series of world input-output tables from 1995 onwards. National input-output tables of forty major countries in the world are linked through international trade statistics. A world input-output table allows one to study say the use of Chinese chemicals in German automobiles bought by Japanese consumers over time. Moreover, the WIOD contains additional satellite accounts. A socio-economic account provides detailed information on the use of various types of labour (distinguished by educational attainment level) and capital (including ICT and non-ICT) in production. The environmental accounts provide information on energy use, greenhouse-gas emissions and other air pollutants of production and final consumption. By standardising concepts and classifications, WIOD opens up a new range of feasible studies on the effects of globalisation. As the WIOD will be made available to the public for free in due time, we hope to enable and stimulate new research in this area.

The remainder of the paper is organised as follows. In section 2 we outline the conceptual framework of a world input-output table. Methods of construction and datasources used are discussed in Section 3. Section 4 introduces datasources for the world input-output table and the socio-economic and environmental satellite accounts. In Section 5 we provide two preliminary applications of the WIOD: one on international trade in value added and another on consumption-based accounting of greenhouse-gas emissions. Section 6 concludes.

2. World Input-Output Table (WIOT): Concepts

In this section we outline the basic concepts of a world input-output table (WIOT). A natural starting point to investigate the increasing interdependence of countries is the use of international trade statistics. Export and import statistics are routinely produced by national statistical institutes (NSIs) on the basis of custom declarations and firm surveys. The compilation of this data is internationally harmonised and comparable statistics are frequently published by the European Union, the OECD and the United Nations. Exports and imports as a share of GDP are steadily increasing in most countries in the world and this measure is often used to indicate the increasing international integration of national economies. A significant share of this international exchange is trade in intermediate products.[1] Rather than goods destined for final consumption, these goods are further used in the production process of the importing country, a phenomenon also known as global production networks. Separate stages of the production process now take place at different geographical locations rather than being concentrated in a particular country. For example, whereas in the past the production of personal computers took mainly place within the U.S., now the separate phases of component production, assembly, testing and packaging are scattered around the world. There is much evidence about the rise of these networks in the past decades but this consists mostly of single product studies based on firm-level cases (Kaplinsky 2000, Gereffi 1999; Sturgeon, van Biesebroeck and Gereffi 2008).

A major bottleneck in the study of global production networks and their socio-economic and environmental effects is the lack of information on cross-country inter-industry linkages. International trade statistics indicate the value of export of say disk-drives from Malaysia to Japan. But they do not convey any information about the value of the product that is actually created in the exporting country. The only information given in the trade statistics is the description of the product following international product classifications such as the Harmonised System (HS). When the components of the disk-drive, such as optical devices, semi-conductors and plastics, are imported by Malaysia, rather than produced domestically, the export value of the disk-drive will be a weak indicator of the value added created in the Malaysian economy. It may range anywhere between virtually zero, in case Malaysia is merely re-exporting finished disk-drives from another country, to the full value in case all stages of production took place within the Malaysian economy. As a result, the increasing importance of global production networks diminishes the usefulness of international trade statistics for country-level analysis. It may lead to reliance on misleading indicators such as the share of high-tech products in total exports. This is a popular indicator of the strength of a national economy and innovation system. But this indicator can be high even for a country that is only involved in the last stages of production such as assembly, testing and packaging that require little skills or technical capabilities.

Clearly what is needed for this type of analysis is information not only on the flow of products between countries, but on the flows of products between industries within and across countries. This type of information is contained in a so-called international, or world, input-output table. To outline the framework of such a table we start with the discussion of a national input-output (IO) table.

In Figure 1 the schematic outline for a national input-out table (IOT) is presented. [2] For ease of discussion we assume that each industry produces only one (unique) product. The rows in the upper parts indicate the use of products, being for intermediate or final use. Each product can be an intermediate in the production of other products (intermediate use). Final use includes domestic use (private or government consumption and investment) and exports. The final element in each row indicates the total use of each product. The industry columns in the IOT contain information on the supply of each product. A product can be imported or domestically produced. The column indicates the values of all intermediate, labour and capital inputs used in production. The vector of input shares in output is often referred to as the technology for domestic production. The compensation for labour and capital services together make up value added which indicates the value added by the use of domestic labour and capital services to the value of the intermediate inputs. Total supply of the product in the economy is determined by domestic output plus imports. An important accounting identity in the IOT is that total supply equals total use for each product, such that all flows in the economic system are accounted for. National IOTs can be linked together into a world input-output table.

[Figure 1 about here]

Basically, a world input-output table (WIOT) is a combination of national IOTs in which the use of products is broken down according to their origin. Each product is produced either by a domestic industry or by a foreign industry. In contrast to the national IOT, this information is made explicit in the WIOT. For a country A, flows of products both for intermediate and final use are split into domestically produced or imported. In addition, the WIOT shows for imports in which foreign industry the product was produced. This is illustrated by the schematic outline for a WIOT in Figure 2.

[Figure 2 about here]

Figure 2 illustrates the simple case of three regions: countries A and B, and the rest of the world. In WIOD we will distinguish 40 countries and the rest of the World, but the basic outline remains the same. For each country the use rows are split into two separate rows, one for domestic origin and one for foreign origin. In contrast to the national IOT for country A it is now clear from which foreign industry the imports originate, and how the exports of country A are being used by the rest of the world, that is, by which industry or final end user. This combination of national and international flows of products provides a powerful tool for analysis of global production chains and their effects on employment, value added and investment patterns and on shifts in environmental pressures. While national IO tables are routinely produced by NSIs, WIOTs are not as they require a high level of harmonisation of statistical practices across countries. In the following sections we outline our efforts in constructing a WIOT.

3. World Input-Output Table (WIOT): Construction and sources

In this section we outline the construction of the WIOT and discuss the underlying data sources. As building blocks we will use national supply and use tables (SUTs) that are the core statistical sources from which NSIs derive national input-output tables. In short, we derive time series of national SUTs and link these across countries through detailed international trade statistics to create so-called international SUTs. These international SUTs are used to construct the symmetric world input-output table which is product or industry based, depending on the set of alternative assumptions used. In Section 3.1 we provide an overview, while in section 3.2 we delve into methodologies and data sources used. For an elaborate discussion of construction methods, practical implementation and detailed sources, see Erumban et al. (2010, forthcoming).

3.1 Brief overview of WIOT construction

The construction of our WIOT has two distinct characteristics when compared to e.g. the methods used by GTAP, OECD and IDE-JETRO. First, we rely on national supply and use tables (SUTs) rather than input-output tables as our basic building blocks. Second, to ensure meaningful analysis over time, we start from output and final consumption series given in the national accounts and benchmark national SUTs to these time-consistent series. SUTs are a more natural starting point for this type of analysis as they provide information on both products and (using and producing) industries. A supply table provides information on products produced by each domestic industry and a use table indicates the use of each product by an industry or final user. The linking with international trade data, that is product based, and socio-economic and environmental data, that is mainly industry-based, can be naturally made in a SUT framework. In contrast, an input-output table is exclusively of the product or industry type. Often it is constructed on the basis of an underlying SUT, requiring additional assumptions.

In Figure 3 a schematic representation of a national SUT is given. Compared to an IOT, the SUT contains additional information on the domestic origin of products. In addition to the imports, the supply columns in the left-hand side of the table indicate the value of each product produced by domestic industries. The upper rows of the SUT indicate the use of each product. Note that a SUT is not necessarily square with the number of industries equal to the number of products, as it does not require that each industry produces one unique product only.

A SUT must obey two basic accounting identities: for each product total supply must equal total use, and for each industry the total value of inputs (including intermediate products, labour and capital) must equal total output value.

Supply of products can either be from domestic production or from imports. Let S denote supply and M imports, subscripts i and j denote products and industries and superscripts D and M denote domestically produced and imported products respectively. Then total supply for each product i is given by the summation of domestic supply and imports:

(1)

Total use (U) is given be the summation of final domestic use (F), exports (E) and intermediate use (I) such that

(2)

The identity of supply and use is then given by

(3)

The second accounting identity can be written as follows

(4)

This identity indicates that for each industry the total value of output (at left hand side) is equal to the total value of inputs (right hand side). The latter is given by the sum of value added (VA) and intermediate use of products.

[Figure 3 about here]

In the first step of our construction process we benchmark the national SUTs to time-series of industrial output and final use from national account statistics. Typically, SUTs are only available for a limited set of years (e.g. every 5 year) [3] and once released by the national statistical institute revisions are rare. This compromises the consistency and comparability of these tables over time as statistical systems develop, new methodologies and accounting rules are used, classification schemes change and new data becomes available. These revisions can be substantial especially at a detailed industry level. By benchmarking the SUTs on consistent time series from the National Accounting System (NAS), tables can be linked over time in a meaningful way. In the next section we provide further information about the extrapolation and linking procedures.