Measuring bilateral trade in terms of value added

The increase in the fragmentation of production across countries and the subsequent growth in the trade of intermediate products have raised concerns about the suitability of conventional trade statistics to understand the economic consequences of trade. Several authors have attempted to disentangle value added content of trade. This technical report proposes a novel framework that enables to: (1) fully decompose the factor content of bilateral trade measured at the border; and (2) account for the role of the different countries and industries participating in the global value chain. Furthermore, because of the country and industry detail of this approach, it provides a new extension of the standard value added to exports ratio, and also reconcile the "sink-based" and "source-based" methods commonly used to report the value added in trade.