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Comparative Advantage of Value Added in Exports: The Role of Offshoring and Transaction Costs

Author

Listed:
  • Choi, Nakgyoon

    (Korea Institute for International Economic Policy)

  • Park, Soonchan

    (Kongju National University)

Abstract

This study tests whether Ricardian comparative advantage is valid for value added in exports that does not include intermediate inputs imported from various industries in a number of countries. Using a panel data on valued added contents of bilateral exports, we find that changes in the labor productivity lead to growth of value added in exports. This implies that Ricardian comparative advantage is an important determinant of exports in longitudinal changes. The estimated coefficients of the observed productivity turn out to be larger than those of CDK (2012), implying that Ricardian comparative advantage has greater influence on determining the patterns of trade in a world with global value chains. This study also investigates the role of offshoring and transaction costs in comparative advantage. We use data on value added in exports, offshoring in materials and services, and transaction costs at the country and industry-level for the period 1995-2009 calculated from World Input-Output Table which covers 40 countries and 14 manufacturing industries. Employing a system GMM estimator to alleviate the potential endogeneity problem, we find that services offshoring has positive effects on comparative advantage while material offshoring affects it negatively. We also find that transaction costs have a negative effect on comparative advantage. Moreover, it turned out that there is a magnification effect of transaction costs on the induced value added in exports.

Suggested Citation

  • Choi, Nakgyoon & Park, Soonchan, 2016. "Comparative Advantage of Value Added in Exports: The Role of Offshoring and Transaction Costs," Working Papers 16-9, Korea Institute for International Economic Policy.
    • Handle: RePEc:ris:kiepwp:2016_009
    DOI: 10.2139/ssrn.2862295
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    Cited by:

    1. Escaith, Hubert, 2020. "Contrasting Revealed Comparative Advantages when Trade is (also)in Intermediate Products," MPRA Paper 103666, University Library of Munich, Germany.

    More about this item

    Keywords

    Value Added In Exports; Offshoring; Transaction Costs;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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