How Does Foreign Demand Activate Domestic Value Added? A Comparison Among the Largest Euro-Area Economies

Abstract

We propose an analysis for the largest euro-area countries (France, Germany, Italy and Spain), based on the framework developed by Koopman et al. (2014) for tracing value added in a country’s exports by source and use. We integrate their approach by introducing an additional dimension: the domestic-sector origin of value added embodied in exports. While providing an accurate picture of these countries’ participation in global value chains, we estimate the impact on their GDP of a shock to foreign demand and disentangle individual contributions along a geographical dimension in a period running from the introduction of the euro to the beginning of the sovereign debt crisis.