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Paper presented to the 16th International Input-output Conference

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Paper presented to the 16th International Input-output Conference

    thPaper presented to the 16 International Input-output Conference

    Istanbul, Turkey, July 2-10, 2007

    1Total Domestic Value Added and Total Imports Induced by Chinas Exports

    Chen Xikang

    Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing, 100080,

    Email: xkchen@iss.ac.cn

    Abstract

    Since 1979 Chinese economy developed very quickly. From 2001 to 2006 the annual average growth rate of GDP is 10.1% and annual average growth rate of total value of imports and exports is 28.1%. According to total value of exports China is the third biggest exports country. High speed growth rate of exports drives Chinas economic growth and employment increase. Hence, it

    is extremely significant to estimate the effects of exports on Chinas domestic value added.

    The U.S.-China bilateral trade balance in 2005 has been estimated by the U.S. Government to be US$201.6 billion, by the Chinese Government to be US$114.2 billion, and by Fung, Lau and Xiong (2006) to be US$172.3 billion. The U.S.-China bilateral trade balance in 2006 is estimated by the U.S. Government to be US$232.5 billion, and by the Chinese Government is US$144.3 billion. However, the domestic value-added generated by exports provides a more accurate measurement of the economic benefits to the exporting country than the gross value of exports.

    One of the important characteristics of contemporary international trade evolution is increasingly cooperation and affiliation among countries, characterized by using large amounts of intermediate inputs imported from other countries/regions in one nations exports production.

    Thus, exports of one nation are practically produced by many countries. A nations total exports

    can be divided into domestic content (Chen, Cheng, Fung and Lau, 2001) and foreign content. One step further, exports can be divided into total domestic value added of exports goods and total foreign value added of exports goods, in other words, total imports.

    Direct imports content is defined as the sum of all directly imported intermediate inputs for producing one unit of products of certain sector.

    Total imports content is defined as the sum of direct imports and all rounds of indirect imports.

    In this paper we proved in mathematics that gross value of exports equal to the sum of total domestic value added and total imports, i.e. foreign value added, or other words, coefficient of total VA is equal to (1 - coefficient of total imports).

    The most important feature of China’s foreign trade is that processing exports holds dominant position in China’s exports. For example, in 2005 the processing exports occupied

     1 The paper was supported by Chinese University of Hong Kong and National Natural Science Foundation of China. The author would express his sincere thanks to Professor Lawrence J. Lau, Leonard K. Cheng, K.C. Fung and Yun-Wing Sung for their important supports and help.

    55% of exports. In 2006 under the support of Chinese University of Hong Kong, we constructed extended input-output tables with assets in non-competitive imports type that captures processing exports of China for 2002 and estimated the effects of China exports on domestic value added and employment, respectively.

    Using the extended IO tables of U.S. and China for 2002 we calculated direct and total domestic value added and direct and total imports induced by per unit of exports for 2002. We found that while in terms of gross value, Chinese exports of commodities to the U.S. in recent years are almost four times U.S. exports to China, in terms of domestic value-added, Chinese exports are less than two times those of U.S.

    As total outputs include plenty of intermediate inputs, usually we take value-added (GDP), not total output value, as an indicator for economic scales of a nation or a department. Nowadays in foreign trade total exports value are often used to measure export scales. With

    the development of international division and foreign trade, the exports of a country often include raw materials and components produced by other countries, therefore it is more important to calculate domestic value-added and foreign value-added induced by exports, which can more accurately reflect a countrys export scale and study the balance of

    international trade.

    2Total Domestic Value Added and Total Imports Induced by Chinas Exports

    Chen Xikang

    Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing, 100080,

    Email: xkchen@iss.ac.cn

    1Introduction

    1. Introduction

    Since 1979 Chinese economy developed very quickly. From 2001 to 2006 the annual average growth rate of GDP is 10.1% and annual average growth rate of total value of imports and exports is 28.1%.. According to total value of exports China is the third biggest exports country. High speed growth rate of exports drives Chinas economic growth and employment increase. Hence, it

    is extremely significant to estimate the effects of exports on Chinas domestic value added.

    The U.S.-China bilateral trade balance in 2005 has been estimated by the U.S. Government to be US$201.6 billion, by the Chinese Government to be US$114.2 billion, and by Fung, Lau and Xiong (2006) to be US$172.3 billion. The U.S.-China bilateral trade balance in 2006 is estimated by the U.S. Government to be US$232.5 billion, and by the Chinese Government is US$144.3 billion However, the domestic value-added generated by exports provides a more accurate measurement of the economic benefits to the exporting country than the gross value of exports.

    One of the important characteristics of contemporary international trade evolution is increasingly cooperation and affiliation among countries, characterized by using large amounts of intermediate inputs imported from other countries/regions in one nations exports production.

    Thus, exports of one nation are practically produced by many countries. A nations total exports

    can be divided into domestic content (Chen, Cheng, Fung and Lau, 2001) and foreign content. One step further, exports can be divided into total domestic value added of exports goods and total foreign value added of exports goods, in other words, total imports.

    Direct imports content is defined as the sum of all imported intermediate inputs for producing one unit of products of certain sector.

    Total imports content is defined as the sum of direct imports and all rounds of indirect imports.

    In this paper we proved in mathematics that gross value of exports equal to the sum of total domestic value added and total imports, i.e. foreign value added, or other words, coefficient of total VA is equal to (1 - coefficient of total imports).

    The most important feature of China’s foreign trade is that processing exports holds dominant position in China’s exports. For example, in 2005 the processing exports occupied 55% of exports. In 2006 under the support of Chinese University of Hong Kong, we constructed extended input-output tables with assets in non-competitive imports type that

     2 The paper was supported by Chinese University of Hong Kong and National Natural Science Foundation of China. The author would express his sincere thanks to Professor Lawrence J. Lau, Leonard K. Cheng, K.C. Fung and Yun-Wing Sung for their important supports and help.

    captures processing exports of China for 2002 and estimated the effects of China exports on domestic value added and employment, respectively.

    Under the support of Hong Kong University of Science and Technology Chen, Cheng, Fung and Lau (2001) have developed a methodology to estimate the domestic value-added and employment generated by exports and applied it to Chinese data to obtain an estimate of the direct domestic value-added content of Chinese exports to the U.S. in 1995 of 20%.

    In 2006 under the support of Chinese University of Hong Kong we constructed extended input-output tables of foreign trade of China for 2000 and 2002 and extended input-output table of United States of 2002, and estimated the effects of China exports and US exports on their domestic value added and employment, respectively.

    Using the extended IO tables of U.S. and China for 2002 we calculated direct and total domestic value added and direct and total imports induced by per unit of exports for 2002. We found that while in terms of gross value, Chinese exports of commodities to the U.S. in recent years are almost four times U.S. exports to China, in terms of domestic value-added, Chinese exports are less than two times those of U.S.

    As total outputs include plenty of intermediate inputs, usually we take value-added (GDP), not total output value, as an indicator for economic scales of a nation or a department. Nowadays in foreign trade total exports value are often used to measure export scales. With

    the development of international division and foreign trade, the exports of a country often include raw materials and components produced by other countries, therefore it is more important to calculate domestic value-added and foreign value-added induced by exports, which can more accurately reflect a countrys export scale and study the balance of

    international trade.

2. Total Domestic Value Added and Total Imports

    2.1. Input-Output Table of the Non-Competitive Imports Type

    First, there are two types of input-output (I-O) tables: the competitive-imports type and the non-competitive-imports type. In order to estimate the effects of exports on domestic value added and employment, it is necessary to use the I-O table of non-competitive-imports type. Up to the present the National Bureau of Statistics (NBS) of China only constructed input-output tables of the competitive-imports type, we shall constructed an input-output table of the non-competitive-imports type.

    Table 1: An Input-Output Table of the Non-Competitive Imports Type

    Intermediate Use Final Use Output Gross Gross Output Input Production Sectors ConsuCapital or Total Exports Others Total 1,2,…, n mption FormatImports ion

    Domestic-all1 y DDDDCDIDE ? X F FF FijX Inter-mediate n Inputs Interme

    diate Intermediate 1

    MMMCMIInputs Inputs from ? X M F F Fij

    Imports n

    Total Intermediate Inputs

    Depreciation of Fixed

    Capital

    Compensation of

    Employees Primary V

    Inputs Net Taxes on

    Production

    Operating Surplus

     Total Value Added

    TTotal inputs X

    The equilibrium conditions for an economy with an input-output table of the non-competitive-imports type are given by:

    ndd (2.1) (1,2,,)inWFX;?ijiij1

    nmm (2.2) WFM;?(1,2,,)inijiii1

    dwhere the superscript d denotes domestic goods and superscript m denotes imported goods. Wij

    ddenotes domestic intermediate inputs from the ith sector to the jth sector, denotes final Fi

    demands for domestic products supplied by the ith sector. The two variables with the superscript

    m simil