The diffusion of international production networks has challenged the capability of traditional trade statistics to provide an adequate representation of supply and demand linkages among the economies.
To address this issue, new statistical tools (the Inter-Country Input-Output tables) and new analytical frameworks have been developed. Koopman, Wang and Wei propose an accounting methodology to decompose a country’s total gross exports by source and final destination of their embedded value added.
We develop this approach further by deriving a fully consistent counterpart for bilateral trade flows, refining the original framework. Along with other contributions, our methodology completes the bridge between traditional trade statistics and the systems of national accounts and provides new tools for investigating global value chains.
Here we present two empirical applications of two different versions of our decomposition of bilateral trade flows: one explores the forward linkages of Italian exports; the second derives a measure of the share of value-chain-related trade and assesses how its evolution since the mid-1990s has affected the relationship between world trade and income.