Beyond trade statistics: how much do exports actually contribute to domestic value added?

Koopman et al. (2014) and Los et al. (2016) decomposed gross exports into various value-added components by adopting the input–output assumption of disconnection between production and final demand. Such an assumption, however, neglects the ability of production inflows to generate income and consumption, and therefore additional impacts on production. To achieve a more complete understanding of the role played by trade, this article presents a method for quantifying the value added of exports that reflects the linkages between production and private consumption. In the tradition of Miyazawa (1968, 1976) and Sonis and Hewings (1973), the proposed model endogenously defines household consumption in the output determination, thus improving the way in which the interdependencies between income and output generation processes are revealed. The proposal is directly applicable empirically through available world trade databases.