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

Abstract

In light of the growing trade in intermediate goods, the WTO, the OECD, and the United Nations are emphasizing the importance of the new concept of trade in value-added (TiVA) in place of the traditional gross trade. Using this new concept, the present study further develops the theoretical and empirical research on Russia’s global trade network as generated by value-added chains. Based on the 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, namely that the sum total of a country’s trade balances with other countries in value-added equals that in gross terms. In other words, the sum total of the differentials between a country’s trade balances with other countries in both value-added and gross terms equals zero. Within this general identity condition, a bilateral value-added trade balance can be less than or greater than its corresponding gross trade balance, depending on intercountry 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, EU, United States, 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 rightly understand Russia’s value chains with the EU and other countries.