Accounting for Intermediates: Production Sharing and Trade in Value Added
Journal of International Economics, 86 (2), 2012
with G. Noguera
Awarded Bhagwati Prize for the best paper published in the JIE during 2011-2012.
Abstract: We combine input-output and bilateral trade data to compute the value added content of bilateral trade. The ratio of value added to gross exports (VAX ratio) is a measure of the intensity of production sharing. Across countries, export composition drives VAX ratios, with exporters of Manufactures having lower ratios. Across sectors, the VAX ratio for Manufactures is low relative Services, primarily because Services are used as an intermediate to produce manufacturing exports. Across bilateral partners, VAX ratios vary widely and contain information on both bilateral and triangular production chains. We document specifically that bilateral production linkages, not variation in the composition of exports, drives variation in bilateral VAX ratios. Finally, bilateral imbalances measured in value added differ from gross trade imbalances. Most prominently, the U.S.-China imbalance in 2004 is 30-40% smaller when measured in value added.
June 2009 version (with data for 2001) is here.