Value Added vs. Gross Trade Balances

This exercise illustrates a stylized global production network with three countries (1, 2, and 3).
- Country 1 sends final goods directly to Country 2. - Country 1 also sends intermediate goods to Country 3. - Country 3 adds its own value and sends final goods to Country 2 (which include Country 1's intermediate part).

Country 1 → Country 2 (final goods from 1): 1

Country 1 → Country 3 (intermediate goods from 1): 1

Country 3's Domestic Value Added: 3

Gross Trade Balances (Nx^ij)

Value-Added Balances (NVAX^ij)