Indirect Domestic Value Added in Mexico's Manufacturing Exports, by Origin and Destination Sector

Abstract

As domestic exports usually require imported inputs, the value of exports differs from the domestic value added contained in exports. The higher the domestic value added contained in exports, the higher the domestic national income created by exports will be. In this case, exports will expand the domestic market. Therefore, exports will push economic growth in two ways: through their direct effect on aggregate demand, and through their effect on the domestic market. For these reasons, the estimate of the magnitude of the domestic value added contained in exports helps explain the capacity of exports to lead economic growth.Domestic exports may be classified as direct and indirect exports. Direct exports are the goods sold to other countries; indirect exports are the domestically produced inputs incorporated in direct exports. The distinction between direct and indirect exports leads to a distinction between direct and indirect domestic value added contained in exports. The income of the factors directly involved in the production of exports constitutes direct domestic value added; the income contained in domestically produced inputs incorporated into exports constitutes the indirect domestic value added. Therefore, the magnitude of indirect value added depends on the density of the domestic intersectorial linkages.The aim of this paper is to present an estimation of the domestic indirect value added contained in Mexico’s manufacturing exports in two ways. The first derives from the fact that a direct exporting sector may be the vehicle through which other sectors export in an indirect way; this leads us to estimate the indirect value added contained in exports by sector of origin. The second refers to the destination of this indirect value added — that is, to the direct exporting sectors in which the value added contained in indirect exports of each sector appears.Based on the input-output table for Mexico (National Institute of Statistics and Geography – INEGI 2008), we estimate the domestic value added contained in inputs used to produce Mexican manufacturing exports. We show separately the domestic value added from maquiladora exports and from exports produced by the rest of the manufacturing sector. In order to distinguish the indirect value added in exports by sector of origin and destination of the intermediate inputs, we work with square matrices of indirect domestic value-added multipliers.