International Value-Added Linkages in Development Accounting

Event Date: 4 October 2017

Speaker: Robert Zymek, University of Edinburgh

Time: 4.15pm

Location: Strathclyde Business School, Cathedral Wing, CW506b

Abstract:

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.

Published: 27 September 2017