A Portrait of Trade in Value Added over Four Decades
The Review of Economics and Statistics, 99 (5), 2017
with G. Noguera
Abstract: We combine data on trade, production, and input use to document five facts about changes in the value added content of trade from 1970 to 2009. We find that the ratio of value-added to gross exports fell by roughly 10 percentage points worldwide [Fact 1]. Across sectors, the ratio declined nearly 20 percentage points in manufacturing, but rose in non-manufacturing sectors [Fact 2]. Across countries, declines range from 0 to 25 percentage points, with fast growing countries seeing larger declines [Fact 3]. Across bilateral partners, declines are larger for nearby partners [Fact 4] and partners that adopt regional trade agreements [Fact 5]. What driving forces underlie these changes? Using a multi-sector structural gravity model with input-output linkages, we show that changes in trade frictions play a dominant role in explaining all five facts.
This paper is a revised version of "Fragmentation and Trade in Value Added over Four Decades" (NBER Working Paper 18186). This article was featured in the Free Exchange column in The Economist magazine.