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The Factor Content of Trade: Global trends since 1995

Aim of this paper. Measure the factor content of imports and exports by country Relevant for many important policy questions:Who benefits from the stimulus package for car manufacturers in Europe?Who is adding the brains' to electronic products, and is this changing over time?Is a country upgrading the skill-content of its exports? Or which exported products see an increase in the skill-content?.

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The Factor Content of Trade: Global trends since 1995

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    1. The Factor Content of Trade: Global trends since 1995 Abdul A. Erumban Marcel P. Timmer Gaaitzen J. de Vries University of Groningen WIOD conference, Vienna, 26-28 May 2010 ThTh

    2. Aim of this paper Measure the factor content of imports and exports by country Relevant for many important policy questions: Who benefits from the stimulus package for car manufacturers in Europe? Who is adding the ‘brains’ to electronic products, and is this changing over time? Is a country upgrading the skill-content of its exports? Or which exported products see an increase in the skill-content?

    3. Aim of this paper Measure the factor content of trade for The 40 countries in WIOD The period 1995-2006 Distinguish production factors: ICT and non-ICT capital, low-, medium-, and high-skilled employment Allow for trade in intermediate inputs Allow for differences in technology across countries (e.g. because of factor price differences)

    4. Global production unbundling for the hard-disc drive The hard disc drive industry gives a good example. Ref = Hiratsuka 2006. The figure shows a map of the sources of the various parts of a hard disk-drive that is assembled in Thailand by Hitachi Global Storage, Thailand, the affiliate of a Japanese company. The plant in Thailand was managed by IBM, and acquiesced by Hitachi in 2003. The disk is sourced from the US, Japan and Malaysia. Of course, the disk itself consists of several parts, some of which are imported from the US and Japan and the same can be said of most of the parts listed. If we traced out the ultimate source of every bit of a disk drive, the map would be impossibly complex. Is should be noted that each country substitutes and complements each other. Parts and components are produced and shipped from eleven countries in the Asian-Pacific region, from Singapore to Mexico, for assembly purpose in Thailand. Interestingly, same parts and components are produced in multiple countries, and shipped to Thailand. The hard disc drive industry gives a good example. Ref = Hiratsuka 2006. The figure shows a map of the sources of the various parts of a hard disk-drive that is assembled in Thailand by Hitachi Global Storage, Thailand, the affiliate of a Japanese company. The plant in Thailand was managed by IBM, and acquiesced by Hitachi in 2003. The disk is sourced from the US, Japan and Malaysia. Of course, the disk itself consists of several parts, some of which are imported from the US and Japan and the same can be said of most of the parts listed. If we traced out the ultimate source of every bit of a disk drive, the map would be impossibly complex. Is should be noted that each country substitutes and complements each other. Parts and components are produced and shipped from eleven countries in the Asian-Pacific region, from Singapore to Mexico, for assembly purpose in Thailand. Interestingly, same parts and components are produced in multiple countries, and shipped to Thailand.

    5. Related literature Studies related to the effectiveness of import-substitution policies (e.g. Syrquin and Urata 1986 JDE; Chenery, Robinson, and Syrquin 1986) (as well as for projection and forecasting purposes) Vertical specialization (Gourevitch 2000 WD; Hummels et al. 2001, JIE) Factor content of trade, testing Heckscher-Ohlin-Vanek predictions (Dietzenbacher and van der Linden 1995 JRS; Davis and Weinstein 2001 AER; Reimer 2006 JIE; Johnson 2008; Trefler and Zhu 2010 JIE; Johnson and Noguera 2010 JIE; Feenstra and Hong 2007 NBER) Old development and input-output literature assumed a country exports final goods. Vertical specialization refers to imported intermediates used in exported production New IO literature explicitly accounts for trade in intermediate goods. Explain contribution to the literature by this paper! Measure detailed factor contents of trade by country over a long time period Old development and input-output literature assumed a country exports final goods. Vertical specialization refers to imported intermediates used in exported production New IO literature explicitly accounts for trade in intermediate goods. Explain contribution to the literature by this paper! Measure detailed factor contents of trade by country over a long time period

    6. Data (1) Data requirements to measure the factor content of trade: By country for the period 1995-2006: Supply and Use tables AM, the N x N imported coefficient matrices AD, the N x N domestic coefficient matrices Bilateral trade data WORLD KLEMS database By country and industry for the period 1995-2006: Capital compensation by industry Low-, medium-, and high-skilled employment PPPs (current version uses exchange rates)

    7. Data (2) Major data steps: Obtain and harmonize official Supply and Use tables. Benchmark SUTs on the national accounts and inter/extrapolate SUTs using the SUTRAS program (Temurshoev and Timmer 2010). Construction of a KLEMS database for non-EU countries Construction of global input-output matrix using imported coefficient matrix and bec classification Model D in Miller and Blair (2010)Model D in Miller and Blair (2010)

    8. Methodology (1) Net output of goods N for country C: yC = xC - A xC (1) where, yC is net output (NC x 1), xC is an (NC x 1) gross output vector, and A is an interregional input-output matrix of dimension (NC x NC) Trade in goods: tC = yC – dC (2) where tC represents country C’s exports of goods (NC x 1) for intermediate or final use, and dC is demand for final use. We adopt the framework outlined in Reimer (2006). Note: N refers to both goods and industriesWe adopt the framework outlined in Reimer (2006). Note: N refers to both goods and industries

    9. Methodology (2) Define a total factor input matrix: B* = B ( I – A)-1 (3) Where B is a direct factor input matrix (F x NC), I an identity matrix, and B* the total factor input matrix. The Measured Factor Content of Trade (MFCT) for country C is: B*tC= B*yC – B*dC (4)

    10. Results for the USA (1995)

    11. Results for the USA (1995)

    12. Results for the USA (1995)

    13. USA and JAPAN (1995)

    14. Concluding remarks USA relatively large exporter of IT capital and high-skilled employment compared to Japan in 1995 Much further data work is needed (interregional table for 40 WIOD countries, factor content for non-EU countries) Measure factor content using volumes instead of values Methodologically advance using price indices Many applications for policy analysis appear feasible.

    15. Additional material

    16. Results for Japan (1995)

    17. Results for Japan (1995)

    18. Results for Japan (1995)

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