Mapping the Middle: How Two-Sided Participation Redefines Global Value Chains

The paper introduces a new output-based, tripartite framework for measuring Global Value Chain (GVC) participation, revealing that traditional trade-based metrics significantly underestimate global production linkages. It highlights the dominance of two-sided participation and shows how GVCs can both expose and stabilize economies facing global demand shocks.

In a sweeping reassessment of how countries and sectors integrate into the global economy, researchers Alessandro Borin and Michele Mancini from the Bank of Italy and Daria Taglioni from the World Bank deliver a groundbreaking analysis in their policy paper “Economic Consequences of Trade and Global Value Chain Integration: A Measurement Perspective.” Published under the World Bank’s Development Research Group, the paper challenges long-standing assumptions about globalization and provides a new framework for measuring participation in Global Value Chains (GVCs). Drawing from major Inter-Country Input-Output (ICIO) datasets including EORA, OECD TiVA, ADB MRIOT, and WIOD, the study introduces a set of refined, output-based indicators covering nearly 190 countries and up to 56 industries from 1990 onward.

Rethinking How We Measure Globalization

The study begins by calling attention to the shortcomings of conventional GVC metrics, which mostly rely on trade data and a binary classification system dividing participation into either backward (importing inputs to produce exports) or forward (exporting inputs for others’ use). These measures, while widely used, tend to blur critical distinctions and fail to capture the complexity of production relationships across borders. More importantly, they ignore the contributions of domestic sectors that support exporting industries without exporting themselves. This limitation leads to two significant distortions: it underestimates the total scope of GVC involvement, and it exaggerates a country’s exposure to global shocks when exports are only a small portion of domestic output. To resolve this, the paper introduces a more refined tripartite framework—pure forward, pure backward, and two-sided participation and applies it not only to trade flows but also to domestic output, which provides a far more accurate representation of how economies engage in globalization.

The Power of Output-Based Metrics

One of the most transformative elements of the study is the shift from trade-based to output-based measurement. Traditional trade data estimates around $10 trillion in GVC-related activities globally. But when recalculated through the lens of production output, that figure nearly doubles to $20 trillion. This gap highlights how much of the global economic web remains hidden when viewed through export numbers alone. Sectors like services, which are often overlooked due to low direct export intensity, emerge as central players in GVCs when their domestic role in supporting exporting sectors is fully accounted for. In fact, while services appear to contribute just $1 trillion to GVCs through trade statistics, output-based estimates show their participation is closer to $5 trillion. This difference is not merely technical; it has far-reaching implications for how nations craft trade, industrial, and resilience policies.

Two-Sided Participation: The Missing Middle

Perhaps the paper’s most important conceptual advancement is the recognition of two-sided participation in GVCs. This occurs when a sector both imports foreign inputs and exports intermediates that are further processed abroad. These sectors, often located in the middle stages of global production chains like electronics, automotive parts, and machinery had previously been misclassified or ignored in binary models. The study reveals that two-sided participation accounts for more than 60% of GVC-related output globally. Ignoring this middle layer leads to a systemic overstatement of backward participation and a misunderstanding of how goods and services actually flow through international production networks. Moreover, it turns out that this two-sided role is not confined to just a few advanced economies or industries—it is a widespread phenomenon, present in nearly 70% of all country-sector combinations studied.

GVCs as Buffers and Amplifiers of Economic Shocks

Beyond redefining measurement, the paper delves into the macroeconomic implications of GVC participation, particularly how it affects a country’s vulnerability to external demand shocks. Using the newly developed output-based indicators and the tripartite classification, the researchers conduct an empirical analysis of how sectors respond to fluctuations in foreign demand. The findings offer a nuanced view: GVC integration does increase exposure to global demand shocks, especially through forward and two-sided channels, but it also stabilizes economies by providing access to diversified markets. For example, China’s electronics sector, rich in two-sided GVC linkages, shows greater resilience to direct demand shocks than Brazil’s mining sector, which is predominantly linked through forward participation. The data also shows that sectors with high GVC integration tend to serve a wider array of foreign markets, reducing their reliance on any single destination and thus lowering risk.

A New Toolbox for Global Trade Policymaking

To make these insights practically useful, the authors introduce a new metric—the “forwardness index” which quantifies whether a sector is more upstream (input supplier) or downstream (final assembler) in a value chain. This index ranges from -1 to +1, with a global average of zero, and correlates strongly with other industry positioning metrics such as upstreamness and value-added intensity. Together with the output-based GVC indicators, it forms a powerful analytical toolkit that can inform development strategies, trade policy, and resilience planning. These tools are publicly available on the World Bank’s WITS Platform, making them accessible to policymakers, researchers, and economists worldwide.

The paper offers a bold reimagining of how we understand and measure economic globalization. By moving beyond trade data and binary classifications, it uncovers the hidden layers of global production and provides a more accurate, policy-relevant picture of how value is created and transmitted across borders. As debates over supply chain security, reshoring, and globalization’s future intensify, this framework offers a timely, data-driven foundation for smarter decisions and deeper insight into the interconnected world economy.