Measuring Domestic Value-Added in Gross Exports of Resource-based and Non-resource-based Economies and its Contribution to International Trade with Emphasis on Iran

Given the importance of economic globalization and the role of intermediate goods in global value chains, this study aims to assess countries’ share of international trade. In this regard, the relationship between domestic value-added (DVA) in gross exports and vertical specialization (VS) among 45 countries was analyzed, and traditional and modern methods of measuring countries’ share in international trade were compared. Data from input-output tables of 43 countries for 2014 and data for Iran and Singapore for 2016 and 2015 were examined, respectively. The findings showed that the inverse relationship between the share of DVA/TGE and VS/TGE holds, as in previous studies, and modern methods provide a more accurate picture of countries’ trade status due to considering intermediate goods and value-added production. In general, in resource-based countries, the share of DVA is higher and the share of VS is lower than the average. Meanwhile, Iran, with DVA and VS shares of 0.94 and 0.06, respectively, ranks at the top and bottom of 45 countries, indicating a weak link with the global value chain and reliance on upstream activities..IntroductionEconomic globalization has led to the emergence of new theories in international trade, emphasizing the critical role of intermediary goods in production processes and value chains. Countries participate in value chains differently based on their economic structures and trade patterns, impacting trade balances and related economic variables. Resource-based economies, such as Iran, with asymmetric trade patterns, tend to have lower integration in global value chains compared to non-resource-based economies with symmetric trade patterns. Quantifying value chains through domestic value-added (DVA) and vertical specialization (VS) helps to assess Iran’s position and its integration into international trade. The increasing importance of intermediary goods in exports has shifted focus from traditional trade theories, which prioritized final goods, to modern theories like “trade in stages” or “trade in tasks”, emphasizing the connection between production factors, intermediary goods, and final products. Modern methods address the shortcomings of traditional models and provide more accurate calculations of value chains.This study explores (1) the relationship between DVA, VS, and international trade participation in resource-based and non-resource-based economies, and (2) the suitability of modern methods over traditional ones in assessing countries’ share in international trade. The paper is organized into six sections: theoretical framework, literature review, data foundations, research methodology, results, and discussion.Methods and MaterialsThis study uses input-output tables from three key sources: the World Input-Output Database (WIOD) for 43 countries based on the 2014 benchmark year, the Central Bank of Iran (CBI) input-output table for 2016, and the Department of Statistics Singapore (DOS) table for 2015. According to the International Monetary Fund (IMF) classification in 2020, economies with more than 20% of their exports derived from resource-based sectors are categorized as resource-based economies. Based on this criterion, countries such as Norway, Australia, Iran, Russia, Brazil, Canada, and Indonesia are considered resource-based economies, while countries with less than 5% of their exports derived from resource-based sectors, such as Malta, Japan, Taiwan, Luxembourg, South Korea, Switzerland, and Singapore, are classified as non-resource-based economies. Countries with resource-based export shares between 5% and 20% are categorized as intermediate economies.To address the research objectives and questions, this study adopts the modern hypothetical extraction method to calculate domestic value-added (DVA) in gross exports and vertical specialization (VS), equivalent to foreign value-added (FVA). The modern approach decomposes gross exports to measure domestic value creation, intermediate imports’ share in exports, and the specialization of countries in production stages. Using this method, the study highlights the inverse relationship between DVA/TGE and VS/TGE and compares these measures to traditional methods, which rely on gross export ratios. While traditional methods assume that exports directly generate value-added and neglect the role of intermediate goods, the modern approach provides a more accurate assessment of countries’ participation in global value chains.Results and DiscussionIn line with the research questions, the findings are presented in two main areas: (1) examining the shares of DVA and VS, and (2) analyzing the results of traditional and modern methods for measuring countries’ shares in international trade. Examining the Shares of DVA and VSSimilar to previous studies, the findings confirm an inverse relationship between DVA and VS shares at the macroeconomic level. As shown in Figure 1, resource-based economies such as Canada, Russia, Iran, Australia, Norway, Brazil, and Indonesia generally have higher DVA shares and lower VS shares compared to non-resource-based economies. For instance, except for countries like Singapore, Hungary, Malta, and Luxembourg (small non-resource-based economies), VS shares are lower than DVA shares in all other countries. According to the 2019 WTO report, economies with skilled labor, such as Singapore, tend to integrate into global value chains (GVCs) in higher value-added segments like design and specialized services.Table 1 illustrates the average shares of DVA/TGE and VS/TGE, both overall and within two distinct groups of countries. In Table 2, we present the average shares of DVA/TGE, VS/TGE, TGE/WTGE, and TGE/GDP for a sample of 45 countries, highlighting the differences in trade dynamics among them.Figure 1. Comparison of the ratio of domestic value added and vertical specialization to total exports of each country with other countries Source: Research findingsTable 1. Average shares of DVA/TGE and VS/TGE overall and between the two groups of countriesCountry GroupsAverage DVA/TGEAverage VS/TGEAll Countries0.710.29Resource-Based Countries0.860.14Non-Resource-Based Countries0.660.34Source: Research findingsTable 2. Average shares of DVA/TGE, VS/TGE, TGE/WTGE, and TGE/GDP for 45 countriesAverage TGE/GDPAverage TGE/WTGEAverage VS/TGEAverage DVA/TGE0.190.030.290.71Source: Research findings Analyzing Traditional vs. Modern MethodsTraditional methods, based on gross export ratios (TGE/GDP and TGE/WTGE), fail to account for imported intermediate goods and multiple border crossings of goods, leading to an incomplete picture of trade competitiveness. Modern methods, focusing on DVA/TGE and VS/TGE, offer a clearer understanding of the actual value created domestically and the role of intermediate imports. As shown in Table 2, the global averages for TGE/GDP and TGE/WTGE are 0.19 and 0.03, respectively, while for DVA/TGE and VS/TGE are 0.71 and 0.29. Table 3 highlights that resource-based economies like Iran, Russia, and Brazil rank low in VS/TGE, reflecting limited integration into GVCs. On the other hand, non-resource-based economies with higher VS shares, such as Singapore, demonstrate greater integration into global trade through specialization and intermediate imports. Table 3 displays the results obtained from both traditional and modern methods for measuring the contributions of individual countries to international trade.The findings indicate that high DVA shares may reflect economic independence but also limited engagement with GVCs, reducing opportunities for technological transfer and productivity gains. Resource-based economies, reliant on upstream industries, need to diversify and increase their participation in GVCs to enhance competitiveness and benefit from international trade. Table 3. Results of traditional and modern methods for measuring countries’ shares in international trade (in order)RankVS/TGECountry Name (Lowest)TGE/ WTGECountry Name (Highest)TGE/GDPCountry Name (Highest)10.06Iran (Lowest)0.139China (Highest)0.79Luxembourg (Highest)20.08Russia0.111United States0.701Singapore30.13United States0.097Germany0.655Ireland40.13Brazil0.047Japan0.638Malta50.14Australia0.044France0.561Hungary60.17Indonesia0.043United Kingdom0.545Slovakia70.17China0.04South Korea0.533Czech Republic80.17Norway0.034Italy0.514Lithuania90.19United Kingdom0.033Netherlands0.505Netherlands100.21India0.032Canada0.504Belgium110.23Japan0.029Singapore0.499Estonia120.24Canada0.028Russia0.494Slovenia130.25Switzerland0.022Spain0.484Taiwan140.26Italy0.022Belgium0.419Bulgaria150.27Romania0.021Taiwan0.41Switzerland160.27Croatia0.021Mexico0.405Denmark170.28Germany0.021India0.396Austria180.28France0.02Switzerland0.387Latvia190.29Turkey0.016Australia0.385South Korea200.29Sweden0.016Brazil0.38Poland210.29Cyprus0.015Ireland0.378Germany Table 3. RankVS/TGECountry Name (Lowest)TGE/ WTGECountry Name (Highest)TGE/GDPCountry Name (Highest)220.03Greece0.014Turkey0.358Sweden230.31Spain0.014Sweden0.357Croatia240.31Latvia0.14Poland0.341Cyprus250.31Poland0.12Austria0.339Norway260.32Portugal0.12Indonesia0.325Romania270.34Mexico0.11Norway0.317Finland280.35Finland0.1Denmark0.287Portugal290.35South Korea0.09Czech Republic0.277Canada300.36Austria0.07Luxembourg0.275Turkey310.36Netherlands0.07Hungary0.263Russia320.36Lithuania0.06Finland0.251Spain330.37Slovenia0.05Iran0.251Italy340.37Denmark0.05Slovakia0.248Mexico350.38Bulgaria0.04Portugal0.241France360.42Taiwan0.04Romania0.231United Kingdom370.43Estonia0.03Greece0.22Greece380.46Belgium0.02Slovenia0.206China390.46Czech Republic0.02Bulgaria0.204Indonesia400.48Ireland0.02Lithuania0.195Iran410.48Slovakia0.01Estonia0.186Australia420.51Singapore0.01Cyprus0.16Japan430.52Hungary0.01Croatia0.153India440.65Malta0.01Latvia0.109Brazil450.66Luxembourg0.01Malta0.102United StatesSource: Research findingsConclusionThis study highlights the importance of adopting modern methods to measure countries’ shares in internatio

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