Fragmentation and Trade in Value Added over Four Decades
We combine data on trade, production, and input use to compute the value added content of trade for forty-two countries from 1970 to 2009. For the world, the ratio of value added to gross trade falls by ten to fifteen percentage points, with two-thirds of this decline in the last two decades. Across countries, declines range from zero to twenty-five percentage points, with large declines concentrated among countries undergoing structural transformation. Across bilateral trade partners, declines are larger for nearby partners and partners that adopt regional trade agreements. That is, both policy and non-policy trade costs shape production fragmentation.
We thank Rudolfs Bems, Emily Blanchard, Donald Davis, Andreas Moxnes, Nina Pavcnik, Jonathan Vogel, David Weinstein, and Kei-Mu Yi for helpful conversations, as well as seminar participants at Columbia, the IMF, MIT, the NBER Spring ITI Meetings, University of Colorado, and University of Houston. Johnson thanks the Rockefeller-Haney fund at Dartmouth College for financial support, and Joseph Celli, Michael Lenkeit, and Sean Zhang for research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.