Tracing Value-added and Double Counting in Gross Exports

Abstract

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...

Input–output Analysis: The Next 25 Years

“…The most prominent series of papers focus on trade theory and trade in value-added in particular. Triggered by the concepts of international fragmentation, global supply chains, and slicing up the value chain, several papers have been published on this topic (Trefler and Zhu, 2010;Bems et al, 2011;Johnson and Noguera, 2012;Koopman et al, 2013). And again, there is a lot of old wine in new bottles.…”

Decomposition of Poland’s Bilateral Trade Imbalances by Value Added Content

“…The two methods anchor VA flows either to the country of production or to the country of final consumption, which they called the source-based and the sink-based approach, respectively. The decomposition that is most similar to the contribution of Nagengast and Stehrer (2014) is the work by Koopman et al (2014). They 'implicitly use a variation of the source-based view when identifying VA exports in gross trade flows, but that their subdivision of VA exports is to some extent arbitrary and not based on the number of international border crossings'.…”

“…Although with regard to the overall trade of a country the trade balances in gross terms and in VA terms are the same, they differ in bilateral trade. The differences arise from the exclusion from trade in value added the parts of trade flows included in traditional statistics more than once (Koopman, Wang & Wei, 2014). Therefore, trade in intermediate goods contributes to divergent statistics according to the two concepts.…”

“…Applying the property of inverse matrices (see more Koopman et al, 2014) and making some transformations (see more Stehrer, 2013 andStehrer, 2014) allow to decompose bilateral gross exports of country 1 to 2 into its VA components (9) The first three terms, , comprise VA exports from country 1 to 2, as in the equation (3).…”

“…Using the fact that the gross output of country 2, x 2 , is endogenous in a demanddriven Leontief system 2 , gross exports from country 1 to country 2 can be split into their 1 The sum of this component over all trading partners (in this case + ) is referred to in Koopman et al (2014) as 'indirect value added exports to third countries'. 2 It means that gross output can be expressed as a function of final demand in all countries in the world, .…”