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[Monitor] High GVC participation implies Korea’s vulnerability to external factors

According to a recent report by the Korea International Trade Association, South Korea’s participation in global value chain trade reached 55 percent as of 2017, placing it at No. 6 out of 18 major countries within the Organization for Economic Cooperation and Development.

GVC refers to international production where the different output stages take place across various countries. With the rise of transnational corporations, firms from different countries tend to divide their production into stages and spread it over time in various countries for economies of scale and to save costs.

It entails forward and backward linkages. Forward linkages occur when a country supplies inputs that are used for production in the destination country. Backward linkages occur when a country uses inputs from another country for domestic production. The global value chain participation rate is calculated by combining the two figures.

According to KITA’s Institute for International Trade, GVC trade took up 20 percent of global gross domestic product, and accounted for 74 percent of all global trade as of 2017.

As of 2018, intermediate goods made up 71.4 percent of Korea’s total exports, higher by 15 percentage points than the world average of 56.5 percent. Of all exports to China, 79.5 percent were intermediate goods, the report noted.