Abstract
This paper aims to analyze the factors affecting domestic value added in exports for seven Latin American countries (LAC) with a focus on the role played by foreign inputs. By using panel data (1995-2016) with fixed effects model, the paper finds that foreign value added (FVA) in exports is a strong determinant of positive changes in domestic value added exports in Latin America. The paper also finds that institutions, tariffs and labor productivity are important determinants of changes in DVA in exports. Additionally, a sectoral analysis reveals the positive effect of FVA in exports on changes in DVA in exports in three sectors: agriculture, manufacture and services. However, FVA in exports has no significant effect on DVA in exports in the mining sector. Overall, our results suggest countries to lower tariffs, to adopt policies that enhance the import of sophisticated intermediates inputs and to promote favorable business environment.
Highlights
With the emergence of global value chains (GVCs), traditional trade statistics measuring gross exports became unable to objectively capture a country’s real export performance (Jara and Escaith, 2012; Banga, 2014; Suder et al, 2014)
Gonzales (2016) has contributed to the literature by investigating the role of foreign factors on enhancing domestic export performance. He found that foreign sourcing is a complement to the creation of domestic value added in exports for Southeast Asian countries
Since increasing a country’s participation in GVCs does not necessarily lead to higher share of Domestic value added (DVA) in its exports, this study aims to analyze the factors affecting the changes of DVA in exports for Latin American with a focus on the role played by foreign value added (FVA) in the production of exports
Summary
With the emergence of global value chains (GVCs), traditional trade statistics measuring gross exports became unable to objectively capture a country’s real export performance (Jara and Escaith, 2012; Banga, 2014; Suder et al, 2014). Domestic value added (DVA) in exports provides a better measure of a country’s export performance and global competitiveness since only the domestic part of the country’s total exports contributes to its G.D.P. Recent studies have investigated the determinants of changes in domestic value added in exports (Kowalski et al, 2015, Vrh, 2018; Gonzales, 2016; Yu and Luo, 2018). Gonzales (2016) has contributed to the literature by investigating the role of foreign factors on enhancing domestic export performance. He found that foreign sourcing (foreign value added [FVA]) is a complement to the creation of domestic value added in exports for Southeast Asian countries
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