Multinational production in value-added terms

Micro-level evidence has emphasised that firms that produce across countries are responsible for a large share of international exchanges of goods, services, capital and knowledge. At the aggregate level, quantitative studies that look at multinational production generally rely on the concept of sales of foreign affiliates, which is a gross concept that includes the value of intermediate inputs. In the case of trade, the literature has recently shifted to a value-added approach that can distinguish in exports the contribution of the different economies supplying inputs. In this paper, we propose a framework that decomposes value-added in domestic sales in order to trace its origin and remove any double-counting. We find that an intercountry input–output table split on ownership can yield an analysis of activities of foreign affiliates of multinational firms in value-added terms.