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Measuring trade in value added: how valid is the proportionality assumption?

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  • Arianto A. Patunru
  • Prema-chandra Athukorala

Abstract

For countries that have only aggregate (‘competitive type’) input–output (IO) tables, value added in exports is commonly estimated using the ‘proportionality assumption’ to separate imported-inputs from domestically procured inputs. We test the validity of this assumption using non-competitive type IO tables, which contain separately compiled domestic- and imported-input matrices, for Indonesia, Thailand, Malaysia, Taiwan, and Australia. The results show that the proportionality assumption leads to an overestimation of domestic value-added in exports, and that the magnitude of the bias becomes amplified when the export composition of a country shifts from primary products to manufactured goods through integration into global production networks.

Suggested Citation

  • Arianto A. Patunru & Prema-chandra Athukorala, 2023. "Measuring trade in value added: how valid is the proportionality assumption?," Economic Systems Research, Taylor & Francis Journals, vol. 35(2), pages 292-300, April.
    • Handle: RePEc:taf:ecsysr:v:35:y:2023:i:2:p:292-300
    DOI: 10.1080/09535314.2021.1965549
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    1. 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.
    2. Deborah Winkler & William Milberg, 2012. "Bias in the ‘Proportionality Assumption’ Used in the Measurement of Offshoring," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 13(4), pages 39-60, October.
    3. Hiau Looi Kee & Heiwai Tang, 2016. "Domestic Value Added in Exports: Theory and Firm Evidence from China," American Economic Review, American Economic Association, vol. 106(6), pages 1402-1436, June.
    4. Robert C. Johnson & Guillermo Noguera, 2017. "A Portrait of Trade in Value-Added over Four Decades," The Review of Economics and Statistics, MIT Press, vol. 99(5), pages 896-911, December.
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    Cited by:

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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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