This paper proposes an accounting framework that breaks up a country’s gross exports into various value-added components by source and additional double-counted terms. Our parsimonious framework bridges a gap between official trade statistics (in gross value terms) and national accounts (in value-added terms), and integrates all previous measures of vertical specialization and value-added trade in the literature into a unified framework. To illustrate the potential of such a method, we present a number of applications including re-computing revealed comparative advantages and the magnifying impact of multi-stage production on trade costs. (JEL E01, E16, F14, F23, L14)

This paper proposes a framework for gross exports accounting that breaks up a country's gross exports into various value-added components by source and additional double counted terms. By identifying which parts of the official trade data are double counted and the sources of the double counting, it bridges official trade (in gross value terms) and national accounts statistics (in value added terms). Our parsimonious framework integrates all previous measures of vertical specialization and value-added trade in the literature into a unified framework. To illustrate the potential of such a method, we present a number of applications including re-computing revealed comparative advantages and the magnifying impact of multi-stage production on trade costs. -1As different stages of production are now regularly performed in different countries, intermediate inputs cross borders multiple times. As a result, traditional trade statistics become increasingly less reliable as a gauge of the value contributed by any particular country. This paper integrates and generalizes the many attempts in the literature at tracing value added by country and measuring vertical specialization in international trade. We provide a unified conceptual framework that is more comprehensive than the current literature. By design, this is an accounting exercise, and does not directly examine the causes and the consequences of global production chains. However, an accurate and well-defined conceptual framework to account for value added by sources is a necessary step toward a better understanding of all these issues.Supply chains can be described as a system of value-added sources and destinations. Within a supply chain, each producer purchases inputs and then adds value, which is included in the cost of the next stage of production. At each stage, the value-added equals the value paid to the factors of production in the exporting country. However, as all official trade statistics are measured in gross terms, which include both intermediate inputs and final products, they "double count" the value of intermediate goods that cross international borders more than once. Such a conceptual and empirical shortcoming of gross trade statistics, as well as their inconsistency with the System of National Accounts (SNA) accounting standards, has long been recognized by both the economics profession and policy makers. 1 Case studies on global value chains based on detailed micro data for a single product or a single sector in industries such as electronics, apparel, and motor vehicles have provided detailed examples of the discrepancy between gross and value-added trade. While enhancing our intuitive understanding of global production chains in particular industries, they do not offer a comprehensive picture of the gap between value-added and gross trade, and an economy's participation in cross-border production chains. Several researchers have examined the issue of vertical specialization on a systematic basis, including the pioneering effort of Hummels, Ishii...

The views in the paper are solely those of the authors and may not reflect the views of the USITC, its Commissioners, or of any other organization that the authors are affiliated with. The authors thank participants of OECD-World Bank workshop "New metrics for global value chain analysis" in Paris, IEFS China 2010 Conference in Beijing, and seminar at Purdue University for helpful comments and suggestions. The authors are particularly grateful for the constructive discussion with Dr. Kei-Mu Yi at the Federal Reserve Bank of Philadelphia in developing the two-country cases and the relationship between our new measures of vertical specialization and the original HIY measures. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

The rise of China in world trade has brought both benefits and anxiety to other economies. For many policy questions, it is crucial to know the extent of domestic value added (DVA) in exports, but the computation is more complicated when processing trade is pervasive. We propose a method for computing domestic and foreign contents that allows for processing trade. By our estimation, the share of domestic content in exports by the PRC was about 50% before China's WTO membership, and has risen to over 60% since then. There are also interesting variations across sectors. Those sectors that are likely labeled as relatively sophisticated such as electronic devices have particularly low domestic content (about 30% or less).

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Trade Commission. Office of Economics working papers are the result of the ongoing professional research of USITC Staff and are solely meant to represent the opinions and professional research of individual authors. These papers are not meant to represent in any way the views of the U.S. International Trade Commission or any of its individual Commissioners. Working papers are circulated to promote the active exchange of ideas between USITC Staff and recognized experts outside the USITC, and to promote professional development of Office staff by encouraging outside professional critique of staff research.

The WTO Global Trade Model, a quantitative trade model, is employed to project the impact on the global economy of the COVID‐19 pandemic. Because of the profound uncertainty about the duration of the pandemic and the containment measures, three scenarios are constructed, V‐shaped, U‐shaped and L‐shaped recovery, corresponding with a duration of the pandemic of 3 months, 6 months and more than a year. The pandemic and containment measures are assumed to lead to a general reduction of labour supply, a rise in trade costs, and reductions in both demand and supply in sectors most affected by the containment measures. GDP and trade are projected to fall by, respectively, 5% and 11% in the V‐shaped and L‐shaped scenarios and trade by, respectively, 8% and 20%. The response of trade to the reduction in GDP, measured by the trade‐to‐GDP elasticity, is projected to rise as the crisis lasts longer. The reason is that a longer duration will lead to a larger drop in spending on durables which are highly tradable.