Here’s the logic of the smile shape: Early in the production process, there are research and design activities for critical components these knowledge activities tend to be high value-added and in GVCs tend to be carried out in more advanced economies. On the horizontal axis is distance to the final consumer. On the vertical axis is compensation per hour for the workers in the country-industry, indicating high- versus low value-added activities. The circles (in which the letter corresponds to a country and the number to a particular industry) indicate country-industries that contribute to production, and their size represents the absolute value-added gained by participating in the value chain (in millions of U.S. These are basically all of your electronic gadgets.

One important finding is that many value chains take the form of a “smile curve” for example, the production chain for China’s exports of electrical and optical equipment in 2009 (see figure). Many countries contribute along the “smile curve”

The report highlights some new findings on the changing nature of international trade. The World Bank, World Trade Organization (WTO), and a group of research centers around the world have published a first “ Global Value Chain Development Report” based on research using data on the value added in trade.

Thankfully, data on the value added traded among major economies is now available (for 1995-2014). The phenomenon also demands that researchers analyze how the production process is divided into discrete tasks or phases. The GVC phenomenon has prompted researchers to develop statistics and analysis based on the value added in trade. So more accurately, South Korea exports a lot to advanced consumer markets. In fact, much of this is components that are ultimately destined for the European or U.S. For example, conventional statistics suggest that South Korea exports a lot to China. As such, they don’t reveal how foreign producers, upstream in the value chain, are connected to final consumers at the end of the value chain. Conventional measures of trade-while still important-measure the gross value of transactions between partners. To add to the challenge, today’s official statistical information systems were designed to measure economic activity in a pre-GVC world, and they have struggled to keep pace (with some notable exceptions).

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