Economics & Development

Recent shifts in global trade patterns have received a lot of attention, but the implications of these shifts for domestic value added in exports (DVAR) have so far been over-looked. This paper documents substantial increases in Viet Nam’s aggregate DVAR since 2018, reversing a long declining trend. Analysis using matched firm-level and customs data reveals that idiosyncratic US demand shocks had large positive effects on firm-level DVAR and output. Firms respond to the shocks by exporting more to both US and non-US markets, and their labor productivity increases, both that are consistent with the economies of scale. Firms also increase their use of domestic materials and reduce reliance on imported materials, suggesting sensitivity to implicit rules of origin. Finally, the paper highlights the role of firm ownership, with non-Chinese owned firms driving the increase in domestic value added.