Domestic value added content of exports: a cross-country comparison for the major European economies Rita Cappariello Final WIOD Conference: Causes and Consequences of Globalization Groningen - 24, 25 and 26 April 2012 The views expressed in the paper and in the presentation are those of the author and not necessarily those of Bank of Italy.
Outline of the presentation • Concepts: some metrics of the value added and the labour income (“compensation of employees”) content of manufacturing exports • Measurements: opportune methodology to estimate the level and the change in value-added content and labour share for France, Germany and Italy. • Results: description of the relationship between gross trade and its value added components. • Some clues on the extent at which domestic value added is generated in the upstream sectors (industrial and services), that is, the ones providing inputs to manufacturing.
Motivation: why measure value added? • Given the development of the global production chains, are the conventional trade statistics still good indicators of a country’s gains from exports? Probably not. • Focus on the value-added (GDP) content of exports and its main component, compensation of employees , that is, on the aptitude of manufacturing exports to generate domestic value added and labour income.
Literature • Hummels, Ishii and Yi (2001) introduced the concept of import content of export (“vertical specialisation”) using I-O tables. • Many papers follow the HIY approach to distiguish the foreign and the domestic value added content of exports (especially for China) [Chen et al. (2007), Koopman et al.(2008), Dean et al. (2007)]. • A more recent line of research focuses on trade flows in value added using an international I-O framework [Daudin et al. (2009), Johnson and Noguera (2010) and Koopman et al. (2010)]
Definitions and measurements
Definitions • Direct value added content of exports is the sum of the value added generated by each manufacturing sector’s exports within its own sector Value added of exports (VAX) • Direct and indirect value added of exports (HIY approach) considers also the value added contained in the domestic inputs (goods and services) of production of exported goods Domestic value added of exports (DVAX) • Quantify the indirect component of value-added of exports: OECD and WTO (2011) “this break-up is particularly important when identifying the sources of national competitiveness, which may rest in up-stream sector which are not considered as exporters by traditional statistics, or measuring the employment impact of export production” .
• Direct value added of exports (VAX) [ ] ∑ = ⋅ VAX X i va i i with X i the gross exports in industry i and va i the value added content of one unit of product i . The underlying assumption in the paper is that in each sector the value added embodied in a good produced for export ( va i ) is equal to the value added of the same good produced for domestic consumption. The same assumption holds for labour compensation content.
• Domestic value added of exports (DVAX) Includes the value added contained “directly” and “indirectly” in domestic inputs. ∑ ∑ ∑∑ ∑∑∑ = + + + + D D D D D D DVAX X va va a va a a va a a a ... i i j ji k kj ji s sk kj ji i j j k j k s with X i the gross exports in industry i , a D ji is the share of domestically produced inputs in sector j used in sector i. By using a different formulation, DVAX can be calculated by removing from the gross exports the “direct” and “indirect” imported inputs. ∑ ∑ ∑∑ ∑∑∑ = − + + + + M M D M D D M D D D DVAX X 1 a a a a a a a a a a ... i i j ji k kj ji s sk kj ji i j j k j k s ji is the share of imported inputs in sector j used in sector i. a M
Definitions • Direct labour income content of exports is the sum of the “compensation of employees” generated by each manufacturing sector’s exports within its own sector Direct labour share of exports (CEX) • Direct and indirect labour income content of exports includes also the labour income contained in all the domestic inputs used for the production of exported goods, that is, the labour income generated by exports in the overall economy Domestic content of labour in exports (DCEX)
• Direct labour share of exports (CEX) [ ] ∑ = ⋅ CEX X i ce i i with ce i the “compensation of employees” content for one unit of product in sector i . • Domestic content of labour in exports (DCEX) ∑ ∑ ∑∑ ∑∑∑ = + + + + D D D D D D DCEX X ce ce a ce a a ce a a a ... i i j ji k kj ji s sk kj ji i j j k j k s a D ji is the share of domestically produced inputs in sector j used in sector i.
Data • National accounts from Eurostat • Nace-sector export data • Input-output tables (Eurostat and Istat) providing the distinction between domestically produced inputs and imported inputs (2000 and 2007) – only for DVAX and DCEX • Imported inputs take into account all goods (including energy products) and market service products (46 NACE- sectors). • As a robustness check to avoid the bias due to the high volatility of energy price, the DVAX has been calculated even by excluding energy products inputs from the manufacturing non energy exports. Results confirmed.
A first evidence: The “direct” value added and labour income content
• Focus on the period between France 160 2000 and 2007 . 140 • Direct value added of 120 manufacturing exports increases 100 less than gross exports. 80 • The performance of German Germany 160 exports was strong (about 60%), 140 even in terms of direct value added 120 (53%). Despite the “bazaar 100 economy” view. 80 • For Italy, the growth of exports Italy was lower (38%), and even less if 160 considered in terms of direct value 140 added content (26%). 120 100 • The increase in the exported direct value added for France was 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 almost negligible, reflecting the gross exports exported va moderate growth of gross exports. Note: for years 2009 and 2010 value-added exports are estimated on pre-crisis national accounts data.
France • For Italy and France similar 160 pattern of the direct labour 140 income content and that of 120 exports. 100 • For Germany they strongly Germany diverge since year 2003. 160 Expansion of exports (45% 140 between 2003 and 2010), 120 induced an lower increase of labour income in 100 manufacturing (16 % -labour Italy 160 inputs decreased by 2.4%). 140 • Role of the Hartz Committee 120 reform in German labour market 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 • Implications for redistribution gross exports exported ce Note: for years 2009 and 2010 compensation of employees exports are estimated on pre-crisis national accounts.
Main results: The “domestic” value added and labour income content
• To be clear, I remind you some definitions: • Direct value-added catches the value added created by each manufacturing sector’s exports in its own sector. • Direct import content measures the value of foreign inputs utilised directly in each manufacturing sector to produce. • Domestic value added estimates the value added created by manufacturing exports in all the economy (private sectors including services) by taking into account the domestic inputs from all sectors used for the production of exported manufacturing goods. • Direct and indirect import content measures the value of foreign inputs utilised directly or indirectly (imported inputs embodied in domestic inputs) in each manufacturing sector to produce goods.
Shares of value added, labour and import content in manufacturing exports Italy France Germany 2000 2007 2000 2007 2000 2007 Direct value added (VAX) 28.0 25.6 25.1 23.6 32.9 31.4 of which: labour content (CEX) 15.7 15.2 15.9 15.7 25.0 20.1 Domestic value added (DVAX) 67.4 61.7 66.4 64.0 70.1 65.5 of which: Domestic labour content (DCEX) 31.2 30.2 38.6 38.7 46.7 38.2 Direct imported inputs 21.3 25.4 22.0 23.9 20.7 23.7 Direct and indirect imported inputs 32.6 38.3 33.6 36.0 29.9 34.5 • Higher aptitude of German exports to create value added (as measured by DVAX ) than Italian exports; similar to the French ones. • When considering the extent to which exports create value added just in their own industries ( VAX ), Germany showed an apparent higher aptitude. • Similar pattern of fragmentation of production (in terms of DVAX ) for German and Italian manufacturing industries. For France the process was less intense. • The same holds for the “labour income” component.
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