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Source – Assembly – Sink: Value Added Flows in the Global Economy

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  • Robert Stehrer

    (The Vienna Institute for International Economic Studies, wiiw)

Abstract

In this paper we provide a method to characterise global value chains and a related decomposition of bilateral gross exports by distinguishing three different stages of the value-added flows (i) the source of value added, (ii) the final assembly stage of a product, and (iii) the final absorption (sink) of this product. Methodologically this is embedded in a simple framework using matrix algebra allowing for intuitive interpretations of the individual decomposition terms and results. The approach leads to a novel decomposition of bilateral gross export flows and related value-added trade indicators. It is shown how these correspond to existing measures using the property of inverse matrices. Specifically, the paper sheds light on the nature of the double-counting terms discussed in the literature. Finally, the approach outlined is extended by incorporating insights from the hypothetical extraction method. We argue that this is a complementary approach which however can be used to flexibly define the value chains of interest and characterise the respective flows that are considered part of this defined value chain, again carefully differentiating the source, assembly, and sink dimensions.

Suggested Citation

  • Robert Stehrer, 2021. "Source – Assembly – Sink: Value Added Flows in the Global Economy," wiiw Working Papers 209, The Vienna Institute for International Economic Studies, wiiw.
    • Handle: RePEc:wii:wpaper:209
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    References listed on IDEAS

    as
    1. Robert C. Johnson, 2018. "Measuring Global Value Chains," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 207-236, August.
    2. Robert Koopman & Zhi Wang & Shang-Jin Wei, 2014. "Tracing Value-Added and Double Counting in Gross Exports," American Economic Review, American Economic Association, vol. 104(2), pages 459-494, February.
    3. Alessandro Borin & Michele Mancini, 2019. "Measuring What Matters in Global Value Chains and Value-Added Trade," World Bank Publications - Reports 31533, The World Bank Group.
    4. Sébastien Miroudot & Ming Ye, 2021. "Decomposing value added in gross exports," Economic Systems Research, Taylor & Francis Journals, vol. 33(1), pages 67-87, January.
    5. Inaki Arto & Erik Dietzenbacher & Jose Manuel Rueda-Cantuche, 2019. "Measuring bilateral trade in terms of value added," JRC Research Reports JRC116694, Joint Research Centre.
    6. Miroudot, Sébastien & Ye, Ming, 2017. "Decomposition of Value-Added in Gross Exports:Unresolved Issues and Possible Solutions," MPRA Paper 83273, University Library of Munich, Germany.
    7. Arne J. Nagengast & Robert Stehrer, 2016. "Accounting for the Differences Between Gross and Value Added Trade Balances," The World Economy, Wiley Blackwell, vol. 39(9), pages 1276-1306, September.
    8. Bart Los & Marcel P. Timmer, 2020. "Measuring Bilateral Exports of Value Added: A Unified Framework," NBER Chapters, in: Challenges of Globalization in the Measurement of National Accounts, pages 389-421, National Bureau of Economic Research, Inc.
    9. Johnson, Robert C. & Noguera, Guillermo, 2012. "Accounting for intermediates: Production sharing and trade in value added," Journal of International Economics, Elsevier, vol. 86(2), pages 224-236.
    10. Bart Los & Marcel P. Timmer & Gaaitzen J. de Vries, 2016. "Tracing Value-Added and Double Counting in Gross Exports: Comment," American Economic Review, American Economic Association, vol. 106(7), pages 1958-1966, July.
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    More about this item

    Keywords

    global value chains; decomposition; gross exports; double-counting; hypothetical extraction;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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