From exports to value added to income: Accounting for bilateral income transfers

Timon Bohn*, Steven Brakman, Erik Dietzenbacher

*Corresponding author for this work

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Abstract

The existence of multinational firms and the rise of global value chains raise the question how international trade contributes to a country's income. Ownership relations between, for example, headquarters and subsidiaries result in international income transfers. These transfers are ignored in standard trade data. Taking them into account in a global input-output analysis allows us to assess how much income is generated in one country due to the consumption of final products in another country. This provides a new perspective compared to the concept of value-added exports introduced by Johnson and Noguera (2012). For the US, we find that the income generated by foreign consumption is 51% higher than the value added in the US that is generated by foreign consumption. Similar findings hold for other countries as well, but to a lesser extent. The implication is that the current account deficit of the US almost disappears from the income perspective.

Original languageEnglish
Article number103496
Number of pages16
JournalJournal of International Economics
Volume131
Early online date29-May-2021
DOIs
Publication statusPublished - Jul-2021

Keywords

  • Gross national income
  • International trade
  • Multinational firms
  • Trade balance
  • Value-added trade

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