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International Value-Added Linkages in Development Accounting

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Abstract

We generalise the traditional development-accounting framework to an open economy setting. In addition to factor endowments and productivity, relative factor costs emerge as a source of real-income variation across countries. These are determined by bilateral trade frictions (which underpin the patterns of “international value-added linkages†) and the global distribution of factor endowments and final expenditures. We use information on endowments, trade balances and value-added trade to back out the relative factor costs of 40 major economies in a theory-consistent manner. This reduces the variation in “residual†TFP required to explain the observed per-capita income differences by more than one half.

Suggested Citation

  • Robert Zymek & Alejandro Cunat, 2017. "International Value-Added Linkages in Development Accounting," ESE Discussion Papers 281, Edinburgh School of Economics, University of Edinburgh.
  • Handle: RePEc:edn:esedps:281
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    1. Timothy J. Kehoe & Kim J. Ruhl, 2008. "Are Shocks to the Terms of Trade Shocks to Productivity?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 804-819, October.
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    3. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
    4. Marcel P. Timmer & Erik Dietzenbacher & Bart Los & Robert Stehrer & Gaaitzen J. Vries, 2015. "An Illustrated User Guide to the World Input–Output Database: the Case of Global Automotive Production," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 575-605, August.
    5. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
    6. Cohen, Daniel & Leker, Laura, 2014. "Health and Education: Another Look with the Proper Data," CEPR Discussion Papers 9940, C.E.P.R. Discussion Papers.
    7. Timothy J. Kehoe & Kim J. Ruhl, 2008. "Are Shocks to the Terms of Trade Shocks to Productivity?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 804-819, October.
    8. 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.
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    More about this item

    Keywords

    world input-output; development accounting; transfer effect;

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • F15 - International Economics - - Trade - - - Economic Integration
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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