Russia’s Global Value Chain using a Modified World Input-Output Data

In light of the growing intermediate goods trade, the WTO, the OECD, and the United Nations have emphasized the importance of a new concept of trade in value-added (TiVA) in place of traditional gross trade. Using this new concept, this study further develops theoretical and empirical research on Russia’s global trade network generated by value-added chains. First, based on global and local equilibrium conditions of a global input–output model, we prove the fundamental theorem on the relationship between gross trade balances in value-added and gross terms: the total sum of a country’s (country r) trade balances with many countries (countries 1, 2,…, s, …, R; s ≠ r) in value-added equals that in gross terms, namely, the total sum of differentials between country r’s trade balances with country s in value-added and gross terms equals zero: ([eproduction of equations for the functions]−[ reproduction of equations for the functions]) + ([reproduction of equations for the functions]−[ reproduction of equations for the functions]) + ⋯ + ([reproduction of equations for the functions]−[reproduction of equations for the functions]) + ⋯ + ([reproduction of equations for the functions]−[ reproduction of equations for the functions]) = 0 for ≠ , where [reproduction of equations for the functions] and [reproduction of equations for the functions] denote country r’s trade balances with country s in value-added and gross terms, respectively. Within this general identity condition, [reproduction of equations for the functions] can be less than or greater than [reproduction of equations for the functions], depending on inter-country-sector technical relations and sectoral value-added ratios. We also show the equivalence theorem between TiVA and the factor (value-added) content of trade proposed by Trefler. We employ a modified version of aggregated World Input–Output Data (WIOD) with eight countries/regions (BRIC, the EU, the USA, Japan, and the Rest of the World (ROW)) and twenty sectors for 2005 and 2010. Modifications are performed to correct an underestimation of Russian oil and gas trade flows and the value-added ratios in the original data, which is essential to correctly understand Russia’s value chains with the EU and other countries.46 p