Quantifying International Production Sharing at the Bilateral and Sector Levels

This paper generalizes the gross exports accounting framework at the country level, recently proposed by Koopman, Wang, and Wei (2014), to one that decomposes gross trade flows (for both exports and imports) at the sector, bilateral, or bilateral sector level. We overcome major technical challenges for such generalization by allocating bilateral intermediate trade flows into their final destination of absorption. We also point out two major shortcomings associated with the VAX ratio concept often used in the literature and ways to overcome them. We present the dis-aggregated decomposition results for bilateral sector level gross trade flows among 40 trading nations in 35 sectors from 1995 to 2011 based on the WIOD database.