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Origin and Destination Sectors of Indirect Domestic Value Added Embodied in Mexico's Manufacturing Exports

Fujii-Gambero, Gerardo and Cervantes-Martínez, Rosario (2015): Origin and Destination Sectors of Indirect Domestic Value Added Embodied in Mexico's Manufacturing Exports.

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Abstract

As domestic exports usually require imported inputs, the value of exports differs from the domestic value added contained in exports. The higher the domestic value added contained in exports, the higher domestic national income created by exports will be. In this case, exports will expand the domestic market. Therefore, exports will stimulate economic growth in two ways: through their direct effect on aggregate demand and through their effect on the domestic market. For these reasons, the estimate of the magnitude of the domestic value added contained in exports helps explain the capacity of exports to lead economic growth.

Domestic exports may be classified in direct and indirect exports. Direct exports are the goods sold to other countries, and indirect exports are the domestically produced inputs incorporated in direct exports. The distinction between direct and indirect exports leads to the distinction between direct and indirect domestic value added contained in exports. Direct value added consists of incomes paid to the production factors directly involved in exports, while indirect value added equals the income contained in domestically produced inputs incorporated into exports. Therefore, the magnitude of indirect value added depends on the density of the domestic inter-sectoral linkages.

The purpose of this paper is to present an estimation of domestic indirect value added contained in Mexico’s manufacturing exports in two ways. The first one derives from the fact that a direct exporting sector may be the vehicle through which other sectors may export in an indirect way. This leads us to estimate the indirect value added contained in exports by sector of origin. The second way refers to the sectors of destination of this indirect value added, that is, the direct exporting sectors in which the value added contained in indirect exports of each sectors appears. Calculations are based on a 2003 input-output matrix for Mexico (INEGI, 2008). Results for the maquiladora-industry exports are shown separately from the rest of manufacturing. In order to distinguish the indirect value added in exports by sector of origin and destination of intermediate inputs, we work with square matrixes of indirect domestic value added multipliers.

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