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Accounting for intermediates: Production sharing and trade in value added

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  • Johnson, Robert C.
  • Noguera, Guillermo

Abstract

We combine input–output and bilateral trade data to compute the value added content of bilateral trade. The ratio of value added to gross exports (VAX ratio) is a measure of the intensity of production sharing. Across countries, export composition drives VAX ratios, with exporters of Manufactures having lower ratios. Across sectors, the VAX ratio for Manufactures is low relative to Services, primarily because Services are used as an intermediate to produce manufacturing exports. Across bilateral partners, VAX ratios vary widely and contain information on both bilateral and triangular production chains. We document specifically that bilateral production linkages, not variation in the composition of exports, drive variation in bilateral VAX ratios. Finally, bilateral imbalances measured in value added differ from gross trade imbalances. Most prominently, the U.S.–China imbalance in 2004 is 30–40% smaller when measured in value added.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 86 (2012)
Issue (Month): 2 ()
Pages: 224-236

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Handle: RePEc:eee:inecon:v:86:y:2012:i:2:p:224-236

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Web page: http://www.elsevier.com/locate/inca/505552

Related research

Keywords: Production sharing; Vertical specialization; Domestic content; Value added; Input–output tables;

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References

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  1. Arnaud Costinot & Jonathan Vogel & Su Wang, 2011. "An Elementary Theory of Global Supply Chains," NBER Working Papers 16936, National Bureau of Economic Research, Inc.
  2. Rudolfs Bems & Robert C Johnson & Kei-Mu Yi, 2010. "Demand Spillovers and the Collapse of Trade in the Global Recession," IMF Economic Review, Palgrave Macmillan, vol. 58(2), pages 295-326, December.
  3. Trefler, Daniel & Zhu, Susan Chun, 2010. "The structure of factor content predictions," Journal of International Economics, Elsevier, vol. 82(2), pages 195-207, November.
  4. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2005. "Vertical Production Networks in Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 664-678, November.
  5. Robert Koopman & William Powers & Zhi Wang & Shang-Jin Wei, 2011. "Give Credit where Credit is Due: Tracing Value Added in Global Production Chains," Working Papers 312011, Hong Kong Institute for Monetary Research.
  6. Ansgar Belke & Lars Wang, 2005. "The Degree of Openness to Intra-Regional Trade - Towards Value-Added Based Openness Measures," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 257/2005, Department of Economics, University of Hohenheim, Germany.
  7. Reimer, Jeffrey J., 2006. "Global production sharing and trade in the services of factors," Journal of International Economics, Elsevier, vol. 68(2), pages 384-408, March.
  8. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February.
  9. Sébastien Miroudot & Alexandros Ragoussis, 2009. "Vertical Trade, Trade Costs and FDI," OECD Trade Policy Papers 89, OECD Publishing.
  10. Kei-Mu Yi, 2008. "Can multi-stage production explain the home bias in trade?," Working Papers 08-12, Federal Reserve Bank of Philadelphia.
  11. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
  12. Robert Koopman & Zhi Wang & Shang-Jin Wei, 2008. "How Much of Chinese Exports is Really Made In China? Assessing Domestic Value-Added When Processing Trade is Pervasive," NBER Working Papers 14109, National Bureau of Economic Research, Inc.
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