3. Origin of Value-Added in Exports of B&R Economies covers 62 economies. Therefore, to support the conclusions in the paper, we turn to another database that has higher country coverage but exhibits some accuracy issues. For the sake of robustness, we replicate the analysis using another set of input-output tables in the appendix (A1).

Value-added is the remuneration of factors of production. Understanding the origin of value-added in gross exports figures allows us to establish the remuneration of tasks for value-chains in different industries. It should be noted that there is not a good or bad share of foreign value-added in a country’s gross exports. However, a larger share denotes a higher likelihood of being part of GVCs.

Value-added in exports refers to the use of foreign business functions that are necessary for the domestic industry to produce its own exports. The use of such activities results in linkages across industries and economies, where firms specialize in a given activity and thus provide value to a GVC. By both selling to and buying from GVCs, firms specialize in the activities for which they have a comparative advantage and associate with other firms around the globe, sourcing and contributing with value-added.

Identifying the origin of value-added in exports allows to quantify the linkages of economies and industries as “buyers of values added”. Thus, the origin of value-added is the origin of foreign content of activities/intermediate inputs/services that are needed for domestic exports. They are sometimes denoted as backward linkages in the literature.

Since for each buyer there is a seller, we can also identify the economies and industries that export their own value-added that third economies use in their domestic industries to produce exports. We refer to the third economies as the destinations of domestic value-added. This is the supply of domestic inputs/business functions/services that is exported and then used in the production of the partner’s exports. This type of linkages is also known as forward linkages.

In this section, we identify the share of value-added in exports by origin and destination using the Leontief decomposition of gross exports. The decomposition considers the flows of intermediate goods between countries and industries that are necessary to satisfy the global demand for consumption goods. By balancing out the unit requirements of each country-industry, the decomposition accounts for the remuneration of all industries’ and countries’ factors of production. To that effect, gross exports are deflated by their value-added, pinpointing the distribution of shared production between countries. A well-known example is the one of Apple’s iPhone. The full value of an iPhone that is assembled in China and shipped abroad is accounted in China’s gross exports, however, some intermediate tasks to produce it were done in other economies. The remuneration of those tasks is the foreign value-added in China’s iPhones’ exports.

# BOX 1: VALUE-ADDED IN EXPORTS BY ORIGIN AND DESTINATION

**As described by Wang et Al. (2013), if the question of interest is to find the origin of the value-added in exports, the simplest approach is to use the Leontief insight.** The approach has been extended to the multiregional case by Johnson and Noguera (2012). Wang et Al. (2013) discussed in depth the technical derivations that are necessary to perform the decomposition.

**The Leontief decomposition is based on the fact that for every final good that is consumed, a certain amount of intermediate goods (which themselves needed raw materials) has been produced.** These intermediate goods have either been traded between industries -in the same or different countries- or within an industry. Thus, in order to produce 1 unit of a final good, we need a certain amount of intermediate goods from a variety of industries. This ratio is referred to as the technical coefficient.

**Using the matrix of technical coefficients and all the inter-industry and intra-industry flows, Leontief accounted for the origin of all the goods consumed in an economy.** The difference between the value paid for the final goods and all the intermediates necessary for their production is the value-added. Value-added is used to remunerate all factors of production, labor, rent of land and capital.

**Extending the concept to many countries, for each 1 currency unit in gross exports some of it was used to pay intermediate goods and the rest is value-added to remunerate factors of production.** Whenever a good

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