Document Type : Research Paper

Authors

• Esfandiar Jahangard ¹
• Alireza Jahangard ²
• Negar Ebrahimi ³

¹ Associate Professor ,Faculty of Economics,Allameh Tabataba’i University, Tehran, Iran

² Computer engineering student ,Faculty of Statistics, Mathematics and Computer, Allameh Tabataba’i University, Tehran, Iran.

³ Master of Research in Economics and Business, University of Groningen, Groningen, Netherlands

Abstract

 In recent years, with the increased availability of data and statistics, particularly multi-country input-output tables and firm-level microdata, along with advances in the data processing capacity of personal computers for managing these vast datasets, as well as information and communication infrastructure, the efficient shared use of databases for foreign trade analysis has become possible. The goal of this paper is to implement the gross export decomposition method by Borin and Mancini (2023), using a source-based approach and the perspective of the exporting country, as a foundational analysis for decomposing value-added in the gross exports of Iran’s economic activities.
The contribution of this paper to the economic literature on Iran can be summarized in the following three aspects: First, it utilizes data from the 2016 inter-country input-output database, including data on Iran, for empirical documentation. Second, it focuses on the most recent theoretical framework presented by Borin and Mancini (2023), with a source-based approach and country perspective, to decompose the value-added in the exports of Iran’s economic activities. Third, it offers a structural interpretation of the value-added decomposition of Iran's exports for the year 2016, which can be useful for researchers and policymakers in understanding the global value chains of Iran’s economic activities. The results show that Iran plays a small and fragile role in the global economy.
Introduction
The global economy has become increasingly interconnected, necessitating comprehensive tools to understand complex trade relationships. Traditional trade statistics, which rely on gross export values, often obscure the actual value added by countries. The emergence of inter-country input-output tables allows for a detailed examination of value-added flows within international trade networks. These tables track the production processes across different countries, shedding light on how value is added at each stage of production. This paper builds on the gross export decomposition framework developed by Borin and Mancini (2023), which enables a nuanced analysis of value-added in exports. By applying this framework to Iran's economic activities, we can gain a clearer picture of how different sectors contribute to the country's export economy. This approach provides a more accurate reflection of Iran's role in global value chains (GVCs), moving beyond traditional metrics that may understate or overstate its economic contributions.
The study utilizes the Inter-Country Input-Output(ICIO) database for the year 2016 which includes Iran, which provides comprehensive data on trade and production relationships among various countries. The ICIO database is particularly suited for this analysis as it captures the interconnected nature of global trade and production networks. The Borin and Mancini (2023) methodology involves decomposing gross exports into three main components: The domestic value-added (DVA), that is value-added exported in final or intermediate goods. This is part of the Domestic Content – the part of exports that originated in the country – and is also a measure of GDP in gross exports or in intermediates absorbed by direct importers. The foreign value-added (FVA) that is value-added contained in intermediate inputs imported from abroad, exported in the form of final or intermediate goods. This is part of the Foreign Content – the part of gross exports that originated abroad. The returned value-added is domestic VA in intermediates exported. By applying this decomposition method, we can analyze the contribution of various sectors to Iran's export economy. This analysis involves several steps:

Data Preparation: Extracting relevant data from the ICIO database for Iran and its trading partners.
Decomposition Calculation: Applying the Borin and Mancini (2023) method to decompose Iran's gross exports into DVA, FVA, and RDVA.
Sectoral Analysis: Examining the results to identify key sectors contributing to Iran's value-added exports.

Results and Discussion
The results reveal significant insights into the structure of Iran's export economy. In 2016, Iran's gross exports were composed predominantly of Domestic Value Added (DVA), reflecting the substantial contribution of domestic industries to the country's exports. The analysis shows that the oil and gas sector plays a crucial role in generating DVA, given Iran's abundant natural resources.
However, the study also highlights the presence of Foreign Value Added (FVA) in Iran's exports. This indicates that foreign inputs are integrated into Iran's production processes, demonstrating the interconnectedness of Iran's economy with global supply chains. For instance, machinery and equipment imported from other countries are essential for Iran's manufacturing sector, contributing to the FVA in its exports. The Returned Domestic Value-Added component, although smaller, provides interesting insights into the circular nature of some value-added flows. This component illustrates how certain domestic value-added returns to Iran after being processed abroad. For example, raw materials exported from Iran may be processed into intermediate goods in other countries and then re-imported for further manufacturing. The application of the Borin and Mancini (2023) value-added decomposition method provides a detailed and nuanced understanding of Iran's export economy. By distinguishing between Domestic Value Added (DVA), Foreign Value Added (FVA), and Returned Domestic Value Added (REF), this analysis offers a comprehensive view of how different sectors contribute to Iran's gross exports.
Conclusion
The study reveals that while Iran's export economy is heavily reliant on domestic industries, it is also deeply from oil and mining interconnected with global supply chains. Furthermore, the Returned Domestic Value-Added component highlights the circular nature of some value-added flows, illustrating the complexity of global trade relationships. For policymakers and researchers, these insights are invaluable. Understanding the composition of Iran's export economy can inform strategies to enhance domestic industries' competitiveness and better integrate into global value chains. Additionally, recognizing the role of foreign inputs in domestic production can guide policies aimed at improving the efficiency and resilience of supply chains. In summary, the value-added decomposition method employed in this study offers a robust framework for analyzing Iran's export economy. It provides a clearer picture of how domestic and foreign industries interact within global trade networks, offering valuable insights for enhancing Iran's economic performance in the context of global value chains.

Keywords

• Value Added
• Gross Exports
• Economic Activities
• Inter-Country Input-Output Tables
• Iran