Trace the goods and value-added route in exports

The rising of Global Value Chains (GVCs) during the last two decades has changed the nature of international trade and investment significantly with many new implications including the generation of value-added. To well understand the international trade in the GVCs context, it is crucial to have a completely decomposition of value-added in the most explicit way. We propose an improved accounting framework based on Koopman, Wang and Wei (2014)’s method by incorporating the Ghosh insight in the value-added demonstration. The new mathematical framework can easily decompose the exports in the form of final demand (including both the intermediate and final good exports). It contributes to the current value-added decomposition GVCs literature because the new method could successfully 1) trace the exports goods propagation route to all the way to the ultimate destination country; 2) trace the value-added terms to include both domestic and foreign double counting terms; 3) show where the value-added double counting terms come from and give explicit expression of domestic and foreign double counting terms. The new framework can also be used for bilateral exports (the most common trade pattern) decomposition directly. At last, we present the dis-aggregated decomposition results for sectoral and bilateral sectoral level trade between China and Brazil based on the WIOD database.