Japanese Plants' Heterogeneity in Sales, Factor Inputs, and Participation in Global Value Chains

Recent research has emphasized the importance of global value chains (GVCs) in inter-country linkages and international production fragmentation. Several initiatives have attempted to construct multi-country input-output tables (MIOTs) to analyze these trends. However, heterogeneity in export and domestic activities among firms within the same industry may cause biases in analyses that rely on MIOTs. This paper has two main objectives. First, we use matched employer-employee data for Japan to split output in each industry in Japan's manufacturing sector in the Organisation for Economic Co-operation and Development (OECD) Inter-Country Input-Output (ICIO) table into output for export or domestic sale. Second, using our split ICIO table, we compute trade in value added (TiVA) indicators to examine the participation of Japanese manufacturing plants in GVCs and compare our results with the OECD-WTO TiVA indicators. Our estimates suggest that Japan's forward participation in GVCs is lower than in the original OECD-WTO TiVA indicators when we take plant heterogeneity within industries into account. We infer that this result is due to higher cross-border production fragmentation as well as the large presence of multinational companies and intra-industry trade in the manufacturing sector.