‘Made in the World’: Measuring the Productivity of Global Value Chains

As an additional approach to the traditional Jorgenson’s accounting method based on the sectoral total factor productivity (TFP), this paper aims to measure GVC-based TFP by explicitly considering intermediate inputs as an endogenous variable. Based on the theoretical derivations, simulations, and a recursive approach, we first clarify the distinction between the Domar- and Leontief-based GVC TFP. We further point out the knife-edge feature of Domar aggregation based on the sectoral TFP, as well as the “missing productivity” of the conventional approach based on the share-weighted sectoral TFP or aggregate production function. Finally, we unify the Domar- and Leontief-based GVC TFP within Jorgenson’s accounting framework and decompose it into four parts. Using the world input–output database, we show that the new GVC TFP helps better understand the nature and structure of international fragmentation production and the evolution of global resource allocations.