As China's export juggernaut employs many imported inputs, there are many policy questions for which it is crucial to know the extent of domestic and foreign value added in its exports. The best known approach - the concept of "vertical specialization" proposed by Hummels, Ishii and Yi (2001) - is not appropriate for countries that engage actively in tariff/tax-favored processing exports such as China, Mexico, and Vietnam. We develop a general formula for computing domestic and foreign contents when processing exports are pervasive. Because this new formula requires some input-output coefficients not typically available from a conventional input-output table, we propose a mathematical programming procedure to estimate these coefficients by combining information from detailed trade statistics with input-output tables. By our estimation, the share of foreign content in China's exports is at about 50%, almost twice the estimate given by the HIY formula. There are also interesting variations across sectors and firm ownership. Those sectors that are likely labeled as relatively sophisticated such as electronic devices have particularly high foreign content (about 80%). Foreign-invested firms also tend to have higher foreign content in their exports than do domestic firms.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
14109.
Length: Date of creation: Jun 2008 Date of revision: Handle: RePEc:nbr:nberwo:14109
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Find related papers by JEL classification: F1 - International Economics - - Trade O1 - Economic Development, Technological Change, and Growth - - Economic Development O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
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