In a globalized economy, the production of goods and services takes place in stages around the world. Domestic consumption expenditure thus rewards foreign factors of production as well as domestic ones and is therefore exposed to fluctuations in the exchange rate and in foreign prices. This paper documents the geographical distribution of the value added embedded in the expenditure of Italian households, both for the sector as a whole and along the distribution of consumption expenditure.
Between 20 and 40 percent of Italian households' expenditure rewards foreign factors of production that were employed for producing the goods and services being consumed or in intermediate stages of production. Slightly less than half of this share is attributable to the productive factors of other euro-area countries and therefore constitutes expenditure by Italian households that, thanks to the common currency, is shielded from exchange-rate fluctuations.
Published in 2023 in: Italian Economic Journal / Rivista italiana degli economisti, v. 9, 1, pp. 35-60.
