Measuring trade in gross exports or value-added – the effects on economic growth; Analysis of the global trade slowdown

This paper looks at the impact of trade on growth when using value-added trade measures instead of gross exports as the proxy for international trade. Defined as Trade in Value Added by Johnson & Noguera (2017), it is a more coherent way of measuring and recording the location of where value is added, compared to gross exports. With the rise in production fragmentation and complex Global Value Chains, this measurement has increased in relevance over the past few decades. However, recent years have seen a break in the trend of global trade and international production fragmentation. This begs the question, does the ‘newer’ measurement of global trade behave as expected in these unprecedented times? With the new WIOD 2016 release, which provides new data on this statistic through 2014, a research into this is now possible. The central question to this research is ‘To what extent is the impact of international trade on economic growth influenced by measuring trade in ‘value-added’ terms?’ This was tested through three hypotheses, which showed the following results: The general relationship between the ratio of value-added trade to gross exports remains negative, although there is evidence of the relationship changing during the Great Recession. Moreover, adding value-added trade as a second independent variable in research aimed at project economic growth does seem to be a valuable and statistically significant addition, indeed.