A General Method to Assess Domestic Value-added in Exports When Processing Trade is Pervasive, with an Application to China

Transcription

1 General Method to ssess omestic Value-added in Exports When rocessing Trade is ervasive, with an pplication to China Robert oopman and Zhi Wang US International Trade Commission Shang-Jin Wei Columbia University, NBER, and CER

2 The paper is a recipe with an illustration Growing up in a centrally planned economy, I was force-taught input-output tables and Leontief inverse as central planners love them as useful tools fter coming to the United States, I eagerly embraced market economy and had resolved to never touch the input-output tables again

3 Imported inputs reduce value added in exports The story of an iod/iad has been told too many times In trade statistics China s export value =$150/unit Chinese value added = $4 iods/iads are assembled through processing trade How general is the iod story?

4 resentation Outline Conceptual Framework roblems with Existing Method new method pplication to China omestic content in China s total exports By sector Conclusions and Future Research

5 How to compute foreign content in exports? Existing Literature International Trade: vertical specialiation Hummels, Ishii and Yi (JIE, HIY for short Yi (JE, 2003 Goh and Olivier (HEC France wp, 2004 Chinn (NBER wp, 2005 U.S. National Research Council (Nat cad ress, 2006 ean, Fung and Wang (ITC wp, 2007 Input-output models: domestic/foreign content Chen, X., L. Cheng,.C. Fung and L. J. Lau Lau L.J., X. Chen, L.. Cheng,. C. Fung, Y. Sung, C. Yang,. Zhu, J. ei and Z. Tang. 2007

6 How to compute foreign (and domestic content in exports? The HIY approach assumes the same intensity in the use of imported inputs between all exports and domestic sales. Might not be appropriate for most countries uty drawback -> use of more imported inputs in exports Especially inappropriate for developing countries with aggressive export promotion programs Mexico: Maquiladora China: pervasive processing trade

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8 How to compute foreign/domestic content in exports? Step 1: Recognie processing exports explicitly Tracking input-output coefficients and import coefficients separately for processing exports vs for normal exports and domestic sales Challenge: the new input-output coefficient matrices not collected by authorities Step 2: Estimate the new I/O coefficients Combine info from trade statistics with existing I/O tables

9 The I/O model when processing exports are not explicitly recognied - the implicit approach by HIY (1 (2 M X X Y Y M X M Total production = dom sale +exports Total imports = final sale + use as intermediates (3 u u M v u Total cost of production = direct V(cost of factors +cost of intermediates = [a ] = matrix of direct input coefficients of domestic products; M = [a M ] is an matrix of direct input coefficients of imported goods;

10 = [a ] = matrix of direct input coefficients of domestic products; M = [ a M ] ] is an matrix of direct input coefficients of imported goods; Y = vector of final demands for domestically produced products, including usage in gross capital formation, private and public consumption, and gross exports; Y M = vector of final demands for imported products, including usages in gross capital formation, private and public final consumption; X is a vector of gross output; M is a vector of imports; v = [a v ] is a vector of each sector s ratio of value-added to gross output;

11 The I/O model when processing exports are not explicitly recognied - the implicit approach by HIY Y I X 1 ( M M Y I Y M 1 ( ( 1 ( / v v I Y X VS The solution: Y is a vector of final demands for domestic products, which includes domestic products used in gross capital formation, private and public final consumption, and gross exports;

12 efine share of domestic value in exports efine share of domestic content (domestic value added in final demand: Share of foreign content: FV = 1- V 1 ( / / v v I Y X Y V VS

13 ssessing V/FV when processing trade is pervasive: New approach Existing approach: omestic final demand and all exports are assumed to have the same input-output matrix New approach Recognie processing exports Let processing exports have a potentially different I/O matrix (while still letting normal exports and domestic final demand to have the same matrix. This is not a trivial extension!

14 Re-work the model when processing trade is recognied (1* ( X E E Y X (2* M ( X E M E Y M M (3* ( M ' E v E E (4* ( M '( X E v ( X E X E (5* u k u Mk v u, k,

15 Imported V Share/Foreign content: generalie HIY Total imported intermediate inputs request: M Y M M ( I ( Y E (1 1 N M 1 E M E p Total FV(VS share in a country s exports by industry VSS VSS VSS T u M u (1 M ( I 1 1 u Total FV (VS share in a country s aggregate exports M T TVSS u M ( I 1 E te N u( M (1 1 M E te

16 This is a generaliation of HIY(2001 When =, and M = M, TVSS reduces to the HIY formula When E /te = 0, TVSS also reduces to the HIY formula

17 omestic content/v: generalies the HIY formula Total V share in a country s exports by industry VS VS VS T V V (1 ( I 1 1 V T Total V share in a country s aggregate exports TVS V ( I 1 E te N ( V (1 1 V E te

18 Estimation Challenge Challenge:,, M, M, V, and V are not directly observable. pproach: Combine input-output tables (from NBS with trade statistics To minimie squared errors in separating the processing exports input output structure from a given national input-output account. Obective function: Min S = i1 1 ( dn 0 0 dn dn 2 i=1 1 ( dp 0 0 dp dp 2 i1 1 ( mn mn 0 mn + i= 1 i= 1 ( mp 0 0 mp mp 2 + =1 ( v n v0 v0 n n 2 1 ( v p v0 v0 p p

19 Constraints e = x e y p i i n i d i dp dn ( 1 = m y i m i mp mn ( 1 e = x v p n mn dn ( 1 = e v p p mp i dp ( 1 m n i mn = 1 m p i mp = 1 m m p i n i dp dn = ( ( 1 1 mp mn dp dn = v v v p n = Four balance conditions: Six adding up constraints y y y i m i d i =

20 arameters and their data sources x = Gross output by sector; (from IO table = Goods used as intermediate inputs in sector ; (from IO table v= Value-added by sector ; (from IO table e n = Normal exports by sector ; (from IO table and trade statistics e p = rocessing exports by sector ; (from IO table and trade statistics m= Total imports by sector ; (from IO table m p = Imports by sector used as intermediate inputs to produce processing exports; (share from trade statistics m n = Imports by sector used as intermediate inputs for domestic \production and normal exports; (share from trade statistics y = Total final demand by sector; (includes consumption and investment, from IO table y m = Final demand from imports by sector (residuals of m- m n - m p y d = Final demand by sector provided by domestic production (residual of y- y m ;

21 Let s look at an application ggregate By industry

22 ercent of total exports Chinese domestic content in its merchandise exports is increasing overtime irect domestic value-added irect foreign value-added Indirect domestic value-added Indirect Foreign value-added

23 ercent of total exports HIY s level of FV (VS share is under-estimated Upward trend in FV is most likely incorrect Total Foreign value-added HIY-1997 HIY-2002 HIY-2007 WW-1997 WW-2002 WW-2007

24 ercent of total exports Chinese domestic content is much lower in processing exports than in normal exports Normal-1997 rocessing 1997 Normal-2002 rocessing-2002 Normal-2007 rocessing-2007 Total Foreign value-added Total omestic Value-added

25 Should there be any trend in V share? Two opposing forces omestic input producers get better over time But the cost of using imported inputs may get lower over time

26 ercent of total exports ecomposing Chinese Total Manufacturing Exports ifferences between HIY and redefined measures HIY-1997 HIY-2002 HIY-2006 WW-1997 WW-2002 WW-2006 irect domestic value-added irect foreign value-added Indirect domestic value-added Indirect Foreign value-added

27 omestic Value-added Share in Chinese Merchandise Exports to its Maor Trading artners Low V share destinations, in percent, 2007 Hong ong Singapore United States rocessing exports as share of Chinese exports EU10 Malaysia V as share of Chinese exports Taiwan province EU15 Japan Share as China s exports to the World

28 omestic Value-added Share in Chinese Merchandise Exports to its Maor Trading artners High V share destinations, in percent, 2007 Russia Eastern Europe/Central sia Sub-Saharan frica rocessing exports as share of Chinese exports Middle East/North frica Rest sia V as share of Chinese exports Rest of Latin mer/caribbean Indonesia India Share as China s exports to the World

29 omestic Value-added Share in Chinese Merchandise Exports by Firm Ownership in percent, 2007 rivate Firms High V share destinations, in percent, 2007 Collectively Owned Firms rocessing exports as share of Chinese exports State Owned Firms V as share of Chinese exports Joint Venture Firms Wholly Foreign Owned Share as China s exports to the World

30 Conclusions cross all products, the average share of imported value added is about 50-60% for China. The FV share varies across products Relatively more sophisticated sectors are more likely to have a high FV share (e.g., consumer electronics, 65%, and computers, 83% One could combine it with regional inputoutput matrices, or incorporate it in a global analysis such as the WW framework For products with a high foreign content, Japan, orea, Taiwan, Hong ong and the U.S. are the primary contributors to foreign content

31 Thank you.