International Value-Added Linkages in Development Accounting
52 Pages Posted: 31 Oct 2018
Date Written: 2018
Abstract
We generalise the traditional development-accounting framework to an open-economy setting. In addition to factor endowments and productivity, relative factor costs emerge as a source of real-income variation across countries. These are shaped by bilateral trade determinants (which underpin the patterns of “international value-added linkages”) and the global distribution of factor endowments and final expenditures. We use information on endowments, trade balances and value-added trade to back out the relative factor costs of 40 major economies in a theory-consistent manner. This reduces the variation in “residual” productivity required to explain the observed per-capita income differences by more than one half.
Keywords: world input-output, development accounting, productivity
JEL Classification: E010, F150, F400, F620, F630
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