Iran’s trade pattern is asymmetric and heavily dependent on upstream industries. Converting gross trade flows into value-added terms and analyzing them at both the aggregate and sectoral levels can provide a basis for assessing Iran’s position in global value chains (GVCs). In this respect, the current study investigated the potential underestimation or overestimation of gross domestic product (GDP) resulting from the conversion of gross trade into value-added terms through the construction of a trade in value added (TiVA) satellite account. Second, the study evaluated Iran’s participation in GVCs. To quantitatively examine these issues, the study employed the Eora multi-region input-output (MRIO) database for 1990 and 2017, and applied the extended hypothetical extraction method within a comparative statics framework. The findings first indicated that the TiVA satellite account was fully consistent with the system of national accounts (SNA) and, consequently, with each country’s GDP. Second, from a country-level perspective, the shares of value-added exports (VAX) and returned domestic value added (REF) embodied in Iran’s gross exports exceeded the global average, indicating a relatively strong upstream position in GVCs. In contrast, the shares of foreign value added (FVA) and double counting (DC) remained below the global average, reflecting Iran’s limited integration into GVCs. From a bilateral perspective, the results suggested that Iran’s membership in BRICS and the Shanghai Cooperation Organization (SCO) has the potential to strengthen the country’s participation in GVCs.
Introduction
The decomposition of value added embodied in gross exports at both the aggregate and sectoral levels can provide a useful framework for analyzing countries’ positions within global value chains (GVCs). The primary objective of this study was to develop a comprehensive framework for decomposing Iran’s gross exports into domestic value-added exports (VAX) (distinguishing between intermediate and final goods); foreign value-added exports (FVA) (distinguishing between intermediate and final goods); returned domestic value added (REF); domestic double counting (DDC); and foreign double counting (FDC). The decomposition was conducted at both the aggregate and sectoral levels, and the results were compared with those of other countries. The study aimed to address two research questions: Do double counting and returned domestic value added lead to the overestimation or underestimation of gross domestic product? And can Iran’s membership in international economic cooperation organizations enhance the country’s participation in global value chains?
Materials and Methods
This study employed the extended hypothetical extraction method as the analytical framework for decomposing the value added embodied in Iran’s gross exports. The analysis relied on the UNCTAD–Eora multi-regional input–output (MRIO) database for 1990 and 2017, covering Iran and 72 other countries. From a country-level perspective, gross exports were decomposed into eight components. Moreover, from a bilateral perspective, Iran’s exports to its trading partners were decomposed into ten components. A comparative statics approach was then used to analyze the findings.
Results and Discussion
The decomposition of Iran’s gross exports at the aggregate level from the country-level perspective, together with the sum of the bilateral decompositions from the bilateral perspective (Table 1), yielded several important findings. First, the sum of all decomposed components was exactly equal to gross exports, demonstrating that the proposed framework ensures consistency between the TiVA satellite account and the SNA. Second, because double counting (DC) and returned domestic value added (REF) were embodied in both exports and imports, they did not result in either the overestimation or underestimation of GDP when national accounts were compiled using the expenditure approach and the production balance identity. Third, the total amount of double counting obtained from the bilateral perspective was smaller than that derived from the country-level perspective, suggesting that the country-level decomposition provides a more comprehensive measure of double counting than the bilateral decomposition.
From the country-level perspective at the aggregate level, the largest share of Iran’s gross exports consisted of domestic value added embodied in intermediate goods. This asymmetric trade pattern is consistent with previous empirical studies of the Iranian economy and confirms that Iran’s export structure is heavily concentrated in intermediate inputs, including raw materials, primary commodities, and industrial components. Moreover, the relatively low shares of foreign value added and double counting indicated the Iranian economy’s limited integration into GVCs.
A comparison between Iran and the other countries in the sample further revealed that Iran’s shares of VAX and REF exceeded the global average, indicating a relatively upstream position in GVCs. In contrast, the shares of FVA and DC were below the global average, reflecting the country’s limited integration into international production networks. Finally, according to the cross-country analysis, high-income economies—including most European Union member states, Singapore, the United States, the United Arab Emirates, and South Korea—exhibited substantially higher levels of DC than lower-income economies.
Table 1. Comparison of Components of Iran’s Gross Exports Based on Country-Level and Bilateral Perspectives (Thousand Dollars)




Decomposition of gross exports according to the country-level perspective


Decomposition of gross exports according to the bilateral perspective (sum)




Components


1990


2017


Components


1990


2017




Gross Export


5,537,274


125,846,896


Gross Export


5,537,274


125,846,896




DVA_FIN


1,113,768


12,878,488


DVA_FIN


1,113,768


12,878,488




DVA_INT


3,739,772


99,395,893


DVA_INT


2,870,566


55,584,511




DVA_INTrex


869,549


43,931,772




DVA_RET


9,271.8


1,051,336


DVA_RET


9,272.5


1,052,241




DDC


386


134,650


DDC


42


13,356




FVA_FIN


175,770


2,141,152


FVA_FIN


175,770


2,141,152




FVA_INT


497,006


10,060,568


FVA_INT


383,473


5,642,774




FVA_INTrex


113,578


4,432,438




FVA_RET


1,249.5


168,052


FVA_RET


1,249.6


168,167




FDC


50


16,757


FDC


5


1,997




Source: Research findings
The sectoral decomposition of Iran’s gross exports across 26 economic activities revealed that the largest shares of VAX and REF were concentrated in the mining and quarrying sector and the manufacture of refined petroleum, chemical, and non-metallic mineral products sector. The highest share of FVA was observed in the manufacture of metal products sector, while the transportation services sector exhibited the highest level of DC.
The decomposition of Iran’s bilateral gross exports, aggregated by regional economic cooperation blocs, indicated that the country’s membership in the Economic Cooperation Organization (ECO) had had only a limited impact on enhancing its integration into the global economy. Although trade with the European Union offers substantial potential, it declined over the study period owing to political tensions and economic sanctions. Overall, the findings suggest that Iran’s membership in BRICS—particularly through its economic ties with China, the United Arab Emirates, and India—and its participation in the Shanghai Cooperation Organization (SCO), which includes China and several of Iran’s neighboring countries, have the potential to strengthen the country’s integration into GVCs.
Conclusion
This study developed a framework for decomposing the value added embodied in Iran’s gross exports from both country-level and bilateral perspectives. By integrating country-level, bilateral, and sectoral analyses, the framework enables a more comprehensive assessment of Iran’s position in GVCs and offers a useful analytical tool for evaluating changes in international production over time. The approach can also be extended to other countries and applied to assess the implications of trade integration, economic cooperation, and participation in GVCs.