An Extended Approach to Value Chain Analysis

Abstract In the article, we propose a comprehensive methodology of value chain analysis in the international input-output framework, introducing a new measure of value chain participation and an extended typology of value chains, including a new measure of fragmentation of domestic value chain production. This allows for the simultaneous analysis of both global and domestic production fragmentation, complex patterns of their evolution and their impact on economic development. The main contribution of the proposed methodology is conceptual: it allows the measurement of all value chain paths that pass through each country-sector from production to final consumption, whether the path includes downstream linkages, upstream linkages or a combination of both at the same time. The empirical application of this methodology shows the importance of including domestic fragmentation in value chain analyses: Both global and domestic fragmentation levels of production show a significant positive correlation with economic growth. This implies that the effects of global production fragmentation need to be analysed together with the changing structure of domestic production fragmentation to obtain a complete picture, which could provide important information for policy-making and industrial policy.