Measuring trade in value added: How valid is the proportionality assumption?

The validity of the ‘proportionality assumption’ made in estimating value added in exports using aggregate input-output tables is tested using separately compiled domestic- and imported-input matrices for Indonesia, Thailand, Malaysia, Taiwan, and Australia. The results show that the use of the proportionality assumption results in overestimation of value-added exports, and that the magnitude of the bias becomes amplified when the export composition of a country shifts from primary products to manufactured goods through integration into global production networks.