# The domestic content of an export total

Data Note · International Trade
A dollar of manufactured exports is a dollar of sales across the border, not necessarily a dollar of Mexican value added. The shipment may embody imported components, domestic suppliers' production and the exporting plant's own contribution. Identifying the domestic content requires tracing those elements without counting a supplier's invoice and the value already embodied in it twice.

The OECD's [Trade in Value-Added framework](https://www.oecd.org/en/topics/sub-issues/trade-in-value-added.html#about) distinguishes domestic and foreign value added embodied in gross exports and derives its indicators from inter-country input-output accounts. This distinction addresses the origin of value created along production chains. It is different from simply identifying the nationality of the exporting company.

## Follow the inputs through a short supply chain

Consider a hypothetical Mexican exporter selling a manufactured product abroad for 100. It purchases imported components directly for 50 and buys a component from a domestic supplier for 30. The exporter's own value added is 20. The supplier's component, in turn, contains imported inputs worth 10 and domestic value added of 20.

| Source of the export's value | Amount |
| --- | ---: |
| Direct imported inputs used by exporter | 50 |
| Imported inputs embodied in domestic supplier's component | 10 |
| Domestic supplier's value added | 20 |
| Exporter's own value added | 20 |
| Gross export value | 100 |

Domestic value added embodied in the export is 40. Foreign value added is 60. Deducting only the exporter's direct imports would give 50 and overstate domestic content, because a domestic invoice is not proof that all its embedded inputs originated locally.

Adding the supplier's entire sale of 30 to the exporter's sale of 100 would create another error. The supplier's component is already embodied in the export. The relevant domestic contribution is the sum of value added across resident production stages, not the sum of every invoice in the chain.

All figures are hypothetical. The example assumes that the stated imported amounts represent the foreign value embodied in these inputs and that the product is exported as final demand without further border crossings. More complex chains require fuller accounting, including returned domestic value and repeated international transactions.

## Value added is not the exporter's profit

The plant's contribution of 20 includes the income and production costs recorded within its value-added boundary. It is not all distributable profit. Wages and other components must be distinguished before the export's connection with household resources or fiscal receipts is assessed.

Likewise, the domestic supplier's 20 may support activity in a different industry or region. Gross exports attributed to the final manufacturing industry can embody services such as transport, design or business support generated upstream. A production-linkage analysis should preserve those origins rather than assign every domestic contribution to the final assembly plant.

Ownership adds a separate income question. Value generated by a resident foreign-owned producer contributes to domestic production, while part of the resulting primary income may accrue to nonresidents. Domestic content and national income retained by residents therefore require different reconciliations.

## What a Mexican export assessment should report

For export-market exposure, the gross shipment total is useful. For the contribution of domestic production stages, value-added content is the appropriate concept. For reliance on imported inputs, direct purchases and indirect foreign content reveal different vulnerabilities.

A trade surplus for one product category is not a substitute for any of those measures. Imports in another customs category may be inputs into the exported product, while some imported equipment serves several years of production. The timing and industry boundaries must be reconciled before a net trade figure is interpreted as domestic income.

The practical requirement is an explicit accounting bridge from the gross export to its domestic and foreign production content. Without that bridge, export growth establishes a change in cross-border sales but leaves the domestic income contribution unresolved.

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American Economic Senate