More on the National Accounts: Gross versus Value Added Exports

Yes, still teaching that. So end up thinking and reading about the stuff. At any rate, an interesting paper by Robert Johnson (here; subscription required), suggests that with the rise of global supply chains gross exports overstate the amount of domestic value-added in exports. Note that now exports have a greater content of imports, so gross trade is not a good measure of value added. Johnson says that: "estimates suggest that value-added exports are equal to 70–75 percent of the value of gross exports."
Interestingly there is more value added in services than the data on gross exports indicates, as can be seen above. In other words, manufacturers exporters tend to buy a lot of local services, and that ends up being part of gross manufacturing export numbers, undervaluing the role of valued added service exports.

The lowest value added to gross exports ratios are in East Asian countries, in the data presented South Korea and Taiwan, which is not surprising. China and Mexico are higher than both South Korea and Taiwan, and I was surprised by that.

An interesting result of his analysis is that: "the ratio of exports to GDP will overstate how much GDP falls when exports decline." Of course, for the external constraint, it might still be the case that gross exports are the relevant ones, since they provide access to hard currency for developing countries.

Comments

  1. There's an interesting related (and free) short note by the Fed on the exact same topic. See here: http://www.federalreserve.gov/econresdata/notes/ifdp-notes/2013/trade-in-value-added-20131203.html

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