Document Type : Research Paper
Authors
1 Graduated from Allameh Tabataba’i University, Tehran, Iran
2 Professor, Faculty of Economics, Allameh Tabataba’i University, Tehran, Iran
3 Associate Professor, Faculty of Economics, Allameh Tabataba’i University, Tehran, Iran
Abstract
Given the importance of economic globalization and the role of intermediate goods in global value chains, this study aims to assess countries’ share of international trade. In this regard, the relationship between domestic value-added (DVA) in gross exports and vertical specialization (VS) among 45 countries was analyzed, and traditional and modern methods of measuring countries’ share in international trade were compared. Data from input-output tables of 43 countries for 2014 and data for Iran and Singapore for 2016 and 2015 were examined, respectively. The findings showed that the inverse relationship between the share of DVA/TGE and VS/TGE holds, as in previous studies, and modern methods provide a more accurate picture of countries’ trade status due to considering intermediate goods and value-added production. In general, in resource-based countries, the share of DVA is higher and the share of VS is lower than the average. Meanwhile, Iran, with DVA and VS shares of 0.94 and 0.06, respectively, ranks at the top and bottom of 45 countries, indicating a weak link with the global value chain and reliance on upstream activities.
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Introduction
Economic globalization has led to the emergence of new theories in international trade, emphasizing the critical role of intermediary goods in production processes and value chains. Countries participate in value chains differently based on their economic structures and trade patterns, impacting trade balances and related economic variables. Resource-based economies, such as Iran, with asymmetric trade patterns, tend to have lower integration in global value chains compared to non-resource-based economies with symmetric trade patterns. Quantifying value chains through domestic value-added (DVA) and vertical specialization (VS) helps to assess Iran’s position and its integration into international trade. The increasing importance of intermediary goods in exports has shifted focus from traditional trade theories, which prioritized final goods, to modern theories like “trade in stages” or “trade in tasks”, emphasizing the connection between production factors, intermediary goods, and final products. Modern methods address the shortcomings of traditional models and provide more accurate calculations of value chains.
This study explores (1) the relationship between DVA, VS, and international trade participation in resource-based and non-resource-based economies, and (2) the suitability of modern methods over traditional ones in assessing countries’ share in international trade. The paper is organized into six sections: theoretical framework, literature review, data foundations, research methodology, results, and discussion.
Methods and Materials
This study uses input-output tables from three key sources: the World Input-Output Database (WIOD) for 43 countries based on the 2014 benchmark year, the Central Bank of Iran (CBI) input-output table for 2016, and the Department of Statistics Singapore (DOS) table for 2015. According to the International Monetary Fund (IMF) classification in 2020, economies with more than 20% of their exports derived from resource-based sectors are categorized as resource-based economies. Based on this criterion, countries such as Norway, Australia, Iran, Russia, Brazil, Canada, and Indonesia are considered resource-based economies, while countries with less than 5% of their exports derived from resource-based sectors, such as Malta, Japan, Taiwan, Luxembourg, South Korea, Switzerland, and Singapore, are classified as non-resource-based economies. Countries with resource-based export shares between 5% and 20% are categorized as intermediate economies.
To address the research objectives and questions, this study adopts the modern hypothetical extraction method to calculate domestic value-added (DVA) in gross exports and vertical specialization (VS), equivalent to foreign value-added (FVA). The modern approach decomposes gross exports to measure domestic value creation, intermediate imports’ share in exports, and the specialization of countries in production stages. Using this method, the study highlights the inverse relationship between DVA/TGE and VS/TGE and compares these measures to traditional methods, which rely on gross export ratios. While traditional methods assume that exports directly generate value-added and neglect the role of intermediate goods, the modern approach provides a more accurate assessment of countries’ participation in global value chains.
Results and Discussion
In line with the research questions, the findings are presented in two main areas: (1) examining the shares of DVA and VS, and (2) analyzing the results of traditional and modern methods for measuring countries’ shares in international trade.
Examining the Shares of DVA and VS
Similar to previous studies, the findings confirm an inverse relationship between DVA and VS shares at the macroeconomic level. As shown in Figure 1, resource-based economies such as Canada, Russia, Iran, Australia, Norway, Brazil, and Indonesia generally have higher DVA shares and lower VS shares compared to non-resource-based economies. For instance, except for countries like Singapore, Hungary, Malta, and Luxembourg (small non-resource-based economies), VS shares are lower than DVA shares in all other countries. According to the 2019 WTO report, economies with skilled labor, such as Singapore, tend to integrate into global value chains (GVCs) in higher value-added segments like design and specialized services.
Table 1 illustrates the average shares of DVA/TGE and VS/TGE, both overall and within two distinct groups of countries. In Table 2, we present the average shares of DVA/TGE, VS/TGE, TGE/WTGE, and TGE/GDP for a sample of 45 countries, highlighting the differences in trade dynamics among them.
Figure 1. Comparison of the ratio of domestic value added and vertical specialization to total exports of each country with other countries
Source: Research findings
Table 1. Average shares of DVA/TGE and VS/TGE overall and between the two groups of countries
Country Groups
Average DVA/TGE
Average VS/TGE
All Countries
0.71
0.29
Resource-Based Countries
0.86
0.14
Non-Resource-Based Countries
0.66
0.34
Source: Research findings
Table 2. Average shares of DVA/TGE, VS/TGE, TGE/WTGE, and TGE/GDP for 45 countries
Average TGE/GDP
Average TGE/WTGE
Average VS/TGE
Average DVA/TGE
0.19
0.03
0.29
0.71
Source: Research findings
Analyzing Traditional vs. Modern Methods
Traditional methods, based on gross export ratios (TGE/GDP and TGE/WTGE), fail to account for imported intermediate goods and multiple border crossings of goods, leading to an incomplete picture of trade competitiveness. Modern methods, focusing on DVA/TGE and VS/TGE, offer a clearer understanding of the actual value created domestically and the role of intermediate imports. As shown in Table 2, the global averages for TGE/GDP and TGE/WTGE are 0.19 and 0.03, respectively, while for DVA/TGE and VS/TGE are 0.71 and 0.29. Table 3 highlights that resource-based economies like Iran, Russia, and Brazil rank low in VS/TGE, reflecting limited integration into GVCs. On the other hand, non-resource-based economies with higher VS shares, such as Singapore, demonstrate greater integration into global trade through specialization and intermediate imports. Table 3 displays the results obtained from both traditional and modern methods for measuring the contributions of individual countries to international trade.
The findings indicate that high DVA shares may reflect economic independence but also limited engagement with GVCs, reducing opportunities for technological transfer and productivity gains. Resource-based economies, reliant on upstream industries, need to diversify and increase their participation in GVCs to enhance competitiveness and benefit from international trade.
Table 3. Results of traditional and modern methods for measuring countries’ shares in international trade (in order)
Rank
VS/
TGE
Country Name (Lowest)
TGE/ WTGE
Country Name (Highest)
TGE/
GDP
Country Name (Highest)
1
0.06
Iran (Lowest)
0.139
China (Highest)
0.79
Luxembourg (Highest)
2
0.08
Russia
0.111
United States
0.701
Singapore
3
0.13
United States
0.097
Germany
0.655
Ireland
4
0.13
Brazil
0.047
Japan
0.638
Malta
5
0.14
Australia
0.044
France
0.561
Hungary
6
0.17
Indonesia
0.043
United Kingdom
0.545
Slovakia
7
0.17
China
0.04
South Korea
0.533
Czech Republic
8
0.17
Norway
0.034
Italy
0.514
Lithuania
9
0.19
United Kingdom
0.033
Netherlands
0.505
Netherlands
10
0.21
India
0.032
Canada
0.504
Belgium
11
0.23
Japan
0.029
Singapore
0.499
Estonia
12
0.24
Canada
0.028
Russia
0.494
Slovenia
13
0.25
Switzerland
0.022
Spain
0.484
Taiwan
14
0.26
Italy
0.022
Belgium
0.419
Bulgaria
15
0.27
Romania
0.021
Taiwan
0.41
Switzerland
16
0.27
Croatia
0.021
Mexico
0.405
Denmark
17
0.28
Germany
0.021
India
0.396
Austria
18
0.28
France
0.02
Switzerland
0.387
Latvia
19
0.29
Turkey
0.016
Australia
0.385
South Korea
20
0.29
Sweden
0.016
Brazil
0.38
Poland
21
0.29
Cyprus
0.015
Ireland
0.378
Germany
Table 3.
Rank
VS/
TGE
Country Name (Lowest)
TGE/ WTGE
Country Name (Highest)
TGE/
GDP
Country Name (Highest)
22
0.03
Greece
0.014
Turkey
0.358
Sweden
23
0.31
Spain
0.014
Sweden
0.357
Croatia
24
0.31
Latvia
0.14
Poland
0.341
Cyprus
25
0.31
Poland
0.12
Austria
0.339
Norway
26
0.32
Portugal
0.12
Indonesia
0.325
Romania
27
0.34
Mexico
0.11
Norway
0.317
Finland
28
0.35
Finland
0.1
Denmark
0.287
Portugal
29
0.35
South Korea
0.09
Czech Republic
0.277
Canada
30
0.36
Austria
0.07
Luxembourg
0.275
Turkey
31
0.36
Netherlands
0.07
Hungary
0.263
Russia
32
0.36
Lithuania
0.06
Finland
0.251
Spain
33
0.37
Slovenia
0.05
Iran
0.251
Italy
34
0.37
Denmark
0.05
Slovakia
0.248
Mexico
35
0.38
Bulgaria
0.04
Portugal
0.241
France
36
0.42
Taiwan
0.04
Romania
0.231
United Kingdom
37
0.43
Estonia
0.03
Greece
0.22
Greece
38
0.46
Belgium
0.02
Slovenia
0.206
China
39
0.46
Czech Republic
0.02
Bulgaria
0.204
Indonesia
40
0.48
Ireland
0.02
Lithuania
0.195
Iran
41
0.48
Slovakia
0.01
Estonia
0.186
Australia
42
0.51
Singapore
0.01
Cyprus
0.16
Japan
43
0.52
Hungary
0.01
Croatia
0.153
India
44
0.65
Malta
0.01
Latvia
0.109
Brazil
45
0.66
Luxembourg
0.01
Malta
0.102
United States
Source: Research findings
Conclusion
This study highlights the importance of adopting modern methods to measure countries’ shares in international trade, emphasizing the need for resource-based economies to diversify their production structures and integrate deeper into global value chains. Future research could explore the impact of factors such as technological advancement, workforce productivity, and international trade agreements on enhancing participation in GVCs. Here are the key findings:
- There is a clear inverse relationship between domestic value-added (DVA) and vertical specialization (VS) shares across all countries. Greater participation in global trade is associated with higher reliance on imported intermediates and lower utilization of domestic raw resources for value-added creation.
- Resource-based economies (e.g., Iran, Russia, Australia) have higher DVA shares (above the global average of 0.65) and lower VS shares, indicating less integration into global value chains (GVCs). These economies rely heavily on upstream industries and domestic resources, focusing less on intermediate imports and downstream production stages.
- Non-resource-based economies (e.g., Singapore, Malta) exhibit higher VS shares, emphasizing vertical specialization and deeper integration into GVCs.
- Traditional methods (e.g., TGE/GDP and TGE/WTGE) fail to account for imported intermediates and overestimate a country’s trade performance, especially in economies reliant on imports for export production.
- Modern methods (DVA/TGE and VS/TGE) offer a more accurate assessment of countries’ contributions to global trade by focusing on the actual value-added rather than gross trade volumes.
Keywords
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