Value-Added Trade and Regionalization. GTAP Eleventh Annual Conference 'Future of Global Economy', Helsinki, Finland

For nearly two decades, growth of international trade has been underpinned by the development of intermediate goods cross exchanges resulting from a new international division of labour. The share of trade in inputs, also called vertical trade, has dramatically increased. Simultaneously, there has been some fear of excessive regionalization in trade. In this situation, the traditional trade measures based on the values of goods crossing borders are inappropriate to measure how self-centred are different regions. This paper suggests a new measure of international trade: "value-added trade". Compared to "standard" trade, "value-added trade" is net of double-counted vertical trade and reallocates trade flows to input-producing industries. A database of value-added trade is made using the GTAP trade and input-output database for 66 regions (mostly countries) and 55 sectors in 1997 and 2001. In 2001, 26% of international trade were "only" vertical specialization trade, up from 25% in 1997. The share of services in value-added trade is much more important than in standard trade. East Asia still relies more heavily on extra-regional final markets than North America or Europe