Fragmentation and Trade in Value Added Over Four Decades

Abstract

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.