Give Credit Where Credit is Due: Tracing Value Added in Global Production Chains

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This paper provides a new conceptual framework to measure the sources of value added trade in global production networks. The framework provides a comprehensive and parsimonious decomposition of gross exports, which enables a full concordance between value-added trade and official trade statistics and eliminates "double counting". It also integrates and harmonizes all previous measures of vertical specialization and value-added trade flows. To empirically implement the framework, we construct a database of global production and trade with new detail on exports of intermediate goods to improve the accuracy of key inter-country input-output flows. We examine regional differences in the sourcing of value added in global supply chains. Among emerging markets, East Asian countries are more tightly integrated into international supply networks, with greater foreign content in their exports and a larger share of intermediate inputs sent to third countries for further processing. Among major developed economies, the United States uses more imported intermediate inputs to produce exports than EU and Japan, but Japan exports the most value-added in intermediates processed in multiple countries before reaching their final consumer. These regional differences also affect trade costs faced by exporters.