Reports
Discussion Papers
No.982 Endogenizing Capital in Measuring Trade in Value-Added
by Ming YE, Sébastien MIROUDOT, Bo MENG
December 2025
ABSTRACT
This paper addresses a critical methodological gap in measuring trade in value added (TiVA) using conventional inter-country input–output (ICIO) models, in which capital is predominantly treated as an exogenous component of final demand. By applying both augmentation and flow-matrix approaches to endogenize capital within ICIO models, we develop new indicators that capture domestic and foreign capital value added embodied in exports, as well as countries’ capital dependence. Our empirical analysis, based on OECD ICIO tables and newly constructed capital-flow matrices, shows that conventional TiVA metrics substantially underestimate the degree of developed economies’ participation and comparative advantages in GVCs, particularly those specializing in the production of capital goods and services. The capital-endogenized approach provides important insights into countries’ export competitiveness and capital dependency, thereby offering a more comprehensive understanding of GVCs and international trade patterns, with implications for technological dependence, supply-chain resilience, and industrial policy.
Keywords: Input-Output Analysis, Trade in Value-added, Global Value Chain, Capital Endogenization, Revealed Comparative Advantage
JEL classification: F6, F13, F15, D57
PDF available at https://hdl.handle.net/2344/0002001641
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