Measuring Trade in Value Added with Firm-Level Data

Global Value Chains have proliferated economic policy debates. Yet a key concept---trade in value added---is likely mismeasured because of sectoral aggregation bias stemming from reliance on input-output tables. This paper uses comprehensive firm-level data on both domestic and international transac...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Bems, Rudolfs, Kikkawa, Ayumu Ken
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2020
Subjects
Bias
International trade
Value added
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Summary:Global Value Chains have proliferated economic policy debates. Yet a key concept---trade in value added---is likely mismeasured because of sectoral aggregation bias stemming from reliance on input-output tables. This paper uses comprehensive firm-level data on both domestic and international transactions to study this bias. We find that sectoral aggregation leads to overstated trade in value added and, correspondingly, understated import content of gross exports. The economic magnitude of the estimated bias varies from moderate to large---at 2-5 p.p. of gross exports for Belgium and 17 p.p. for China. We study how the interplay between within-sector heterogeneities in firm import and export intensities and firm size determine the magnitude of the sectoral aggregation bias.