Decomposition of value added in gross exports: a critical review

Abstract

Purpose: The purpose of this paper is to settle the methodological debate on the decomposition of value added in gross exports, proposing a standard, exposing the drawbacks of the alternatives and quantifying the differences. Design/methodology/approach: This paper systematizes the analytical framework and assesses and quantifies the various methodologies and its main differences. Findings: The decomposition method of Borin and Mancini (2023), using a source-based approach and an exporting country perspective, should be considered as the standard for decomposing the value added in gross exports. This study finds that alternative approaches and perspectives are methodologically inferior, and that tailored perspectives do not provide an increase in accuracy that compensates their drawbacks. Originality/value: This paper’s contribution is fourfold: it rejects the alleged equivalence between approaches and perspectives, defending the superiority of a particular method, approach and perspective; it gives quantitative examples of the differences between them; it proves that the drawbacks of tailored perspectives do not compensate their alleged accuracy (as they do not result in big quantitative differences with the standard perspective); and it argues that no valid standard decomposition can forego the calculation of value added exported, which requires the expression of exports in terms of final demand.