In Moliere’s _The Bourgeois Gentleman_ , M. Jourdain discovers that he has "been speaking prose all my life, and didn't even know it!" We suspect that many of us have been working on global value chains (GVCs) without quite knowing it. A value chain comprises “the full range of activities that are required to bring a product from its conception, through its design, its sourced raw materials and intermediate inputs, its marketing, its distribution and its support to the final consumer.”<sup>2</sup> A GVC emerges when these activities are undertaken by entities based in or from different countries. Several studies of international trade in services inputs and of foreign direct investment in business services are thus potentially relevant to an examination of GVCs.

Two questions arise. What makes a value chain a GVC? And why do services merit special consideration in a discussion of GVCs?

The first question has sometimes been reformulated as “How many ‘borders’ does a value chain have to cross to qualify as a GVC?” (perhaps analogously to a recent Nobel laureate’s question, “How many roads must a man walk down, before you call him a man?”). In the GVC case, some analysts have suggested a fairly precise answer. For example, the widely used GVC participation index proposed in Koopman et al. (2010) is determined by the foreign value added embodied in the gross exports of a given country and the domestic value added embodied in the gross exports of third countries. This definition would set a GVC— such as importing to export—apart from value chains that involve a single international transaction, an import or export of intermediate goods. It may well be true that multiple international transactions along a value chain have economic implications that are qualitatively distinct from (the sum of) a series of single international transactions, even though this has not yet been established empirically. It may, however, also be true that the implications of even single international transactions along a value chain are economically important and policy relevant. So, this paper adopts a broader view of GVCs that also includes single international transactions, covering both simple GVCs, with one border crossing, and complex GVCs, with two or more border crossings (Wang, Wei, and Zhu 2017).<sup>3</sup> The second question can be reformulated as two questions: Should services be examined separately from goods in a discussion of GVCs? And should they be treated as a single broad category, the same way goods are? Our answer to both questions: In some respects no, in others yes.

In some ways, services play a role similar to goods in GVCs, whether they are meant for final consumption or as inputs in the production of goods or other services. In fact, the most detailed analysis of the role of services in value chains—drawing on the new world input-output tables and value-added trade databases—relates only to situations in which services are traded in a manner akin to how goods are traded. However, services deserve special attention for four reasons, relating to how they are transacted, how they affect downstream sectors, how they are regulated, and how international cooperation can contribute to integrating national markets.

> 2 <u>https://globalvaluechains.org/concept-tools.</u>

> 3 A definition that does not include single international transactions also creates a slight awkwardness in the treatment of transactions located at the beginning or at the end of linear value chains. Even if they do not qualify as part of GVCs, the hypothesis must be that the history and the future matter. That is, a final import that involves border crossings at early stages of the value chain and an initial export that will cross other borders at later stages of the value chain should have different implications from those that do not.

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