Assessing Export Competitiveness through the Lens of Value Added

• Date: 01 February 2017
• Author: Janet Ceglowski
• Published date: 01 February 2017
• DOI: http://doi.org/10.1111/twec.12362

Assessing Export Competitiveness through

the Lens of Value Added

Janet Ceglowski

Economics Department, Bryn Mawr College, Bryn Mawr, PA, USA

1. INTRODUCTION

PROFOUND changes in the structure, organisation and geography of world trade have

taken place over the last two decades. Since the early 1990s, significant new exporters

have emerged. China is the most prominent, but other countries have also developed their

export capacities to become major suppliers. This has been facilitated, in part, by the develop-

ment and maturation of global value chains (GVCs). The rise of new global competitors and

the development of GVCs have challenged the pre-eminence of major industrial countries in

trade. As a consequence, concerns over competitiveness and hollowing-out have risen in

recent years.

1

This study examines countries’ recent export performance in the light of these changes. It

assesses countries’ export competitiveness through recently developed measures of revealed

comparative advantage (RCA) that facilitate comparisons across countries, products and time.

It also expands the assessment of export performance in two important dimensions. First, it

moves beyond measuring RCA based on gross exports by also calculating measures based on

the domestic value added in foreign final demand. The latter measures the domestic value

added in a country’s gross exports, netting out the imported and re-imported inputs that fuel

GVCs. Second, it evaluates RCA for services, as well as goods.

The distinction between gross exports and the domestic value embodied in exports has

become more important since the emergence of GVCs. The increasing use of imported com-

ponents and offshoring parts of the production process means that a final export may contain

a high percentage of foreign value added and a correspondingly small percentage of value

added by the exporting country. But as Johnson (2014) and others have noted, the recorded

value of the final export will contain both the domestic value added and the imported value

added. In theory, large exports need not reflect large amounts of domestic value added. By

extension, a country’s export competitiveness measured by the domestic value added con-

tained in its exports could look quite different from one measured by gross exports.

The inclusion of services is important for two reasons. First, some countries are major

exporters of services so that excluding services from the analysis would fail to capture the

sector’s contribution to export performance in those countries. Second, even when not

exported directly, domestically produced services can be embodied in the exports of other

products. There could thus be a substantial difference between a country’s direct exports of

services and its indirect exports of services embodied in other exports. In theory, a major

goods exporter could be a major (indirect) services exporter as well, even if its direct service

exports are small.

1

See, for example, Levinson (2013) on concerns for the US, Sinn (2006) on Germany, and, for Japan,

the 2/20/13 Brookings conference entitled ‘The Hollowing-Out of Japan’s Economy: Myths, Facts, and

Countermeasures’. While issues of hollowing-out and competitiveness encompass both the export and

domestic sectors, this study focuses on export competitiveness.

©2015 John Wiley & Sons Ltd 275

The World Economy (2017)

doi: 10.1111/twec.12362

The World Economy

To bring these dimensions to the fore, this study focuses on the export competitiveness of

two groups of industries for which the distinction between gross exports and domestic value

added in foreign final demand may be particularly significant. The first group encompasses

three manufacturing industries that are highly integrated into GVCs: machinery and equip-

ment, electrical and optical equipment, and transport equipment.

2

Collectively, these three

industries will be labelled the GVC manufactures aggregate. The second group consists of

two service industries which De Backer and Miroudot (2013) identify as active participants in

GVCs: financial services and business services. Together, these will be referred to as the

GVC services aggregate.

The analysis finds countries’ export competitiveness in the GVC industries looks different

through the lens of domestic value added than on the basis of conventional measures of gross

exports. Most significant are differences in the degree of export competitiveness that, in some

cases, are substantial. The size and even sign of these differences vary across the five indus-

tries. Even from a value-added perspective, though, several major industrial countries remain

highly competitive in one or more of the GVC industries.

2. EXPORT DATA

This study makes use of the recently released Trade in Value-Added (TiVA) database

issued jointly by the OECD and the WTO. The TiVA database provides estimates of the

value that is added by source in the production of goods and services for export, com-

piled from an international input–output model.

3

It reports estimated dollar values of sev-

eral measures of the value added in trade for 56 individual countries, a rest-of-the-world

residual, and the world as a whole. This study uses the TiVA measures for gross exports

and the domestic value added in foreign final demand. The former include value added

from all sources and are the measures of exports that are typically used to calculate

RCA. The latter is analogous to exports of domestic value added (OECD, 2013a). In

the May 2013 release of the TiVA database, data are available for select year s begin-

ning in 1995 to 2009. Because the global trade collapse could have affected countries’

export performance in 2009, this analysis relies primarily on the 2008 values to assess

recent export performance.

4

For each country in the database, each value-added measure is

2

This characterisation follows Bems et al. (2010) and Baldwin (2009), who labels these three industries

the ‘supply chain sectors’. The choice of these industries is not meant to suggest that GVCs have not

affected other industries but, rather, that their impacts may be especially pronounced in this set of indus-

tries. In the text, machinery and equipment will be referred to as machinery, and electrical and optical

equipment will be referred to as electrical equipment for short.

3

This study uses the May 2013 release of the TiVA database, available at www.oecd.org/trade/val-

ueadded. The international input–output model is compiled from a set of harmonised input–output mod-

els for individual countries and bilateral trade flows. Though they are constructed with considerable

care, the WTO (2013) emphasises that the reported values are estimates. See OECD (2012) for a

detailed description of the database’s construction.

4

Indeed, a FAQs site for the database (OECD, 2013a) urges caution in interpreting the 2009 data, point-

ing out that the slowdown in international trade in that year was accompanied by a rise in the share of

domestic value added in exports. The latter rise runs counter to a general trend over time towards lower

domestic value added to export ratios caused by GVCs. Nonetheless, the measures of RCA are also com-

puted with the 2009 data and compared with the results for 2008.

©2015 John Wiley & Sons Ltd

276 J. CEGLOWSKI