The Value Added-Exports Puzzle and Global Value Chains

Zhe Chen and Yoshinori Kurokawa

Tsukuba Economics Working Papers from Faculty of Humanities and Social Sciences, University of Tsukuba

Abstract: While most OECD countries experienced declines in manufacturing value added relative to GDP over 1970-2001, they have experienced increases in manufacturing exports relative to GDP during the same period. Bergoeing et al. (2004) documented this "value added-exports puzzle" and predicted that vertical specialization can explain it. Using the 1995-2018 data for 22 OECD countries and 17 manufacturing industries, we empirically investigate whether vertical specialization, or global value chain (GVC) participation, is a factor significantly affecting the puzzle. Our regressions show that the puzzle is stronger for countries and industries with the greater GVC backward linkage, while it is weaker for countries and industries with the greater GVC forward linkage. We also find that the puzzle is weaker for countries and industries that focus more on the upstream stage. Thus Bergoeing et al. (2004) were right, but we must be careful that the two measures of vertical specialization, the backward and forward GVC linkages, have the opposite effects.

Date: 2023-02
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