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International Value-Added Linkages in Development Accounting

19  February 2018    3:00 pm

Alejandro Cuñat, University of Vienna and CESifo

In cooperation with:
Research Centre International Economics (FIW) 


wiiw, Rahlgasse 3, 1060 Vienna


The presentation is based on a paper co-authored with Robert Zymek (University of Edinburgh and CESifo).

We generalise the traditional development-accounting framework to an open-economy setting. In addition to factor endowments and productivity, relative factor costs emerge as a source of real-income variation across countries. These are determined by bilateral trade frictions (which underpin the patterns of “international value-added linkages”) and the global distribution of factor endowments and final expenditures. We use information on endowments, trade balances and value-added trade to back out the relative factor costs of 40 major economies in a theory-consistent manner. This reduces the variation in “residual” TFP required to explain the observed per-capita income differences by more than one half.

Keywords: world input-output, development accounting, transfer effect

JEL classification: E01, F15, F40, F62, F63