Examining the Bilateral Relationship between Mexico and South Korea through the Trade in Value-Added Perspective, 2000–2021

Abstract

This article examines the trade relationship between Mexico and South Korea through the lens of trade in value-added perspective. Using the global input–output model, we dissect gross exports into their value-added components to analyze the sectors benefiting most from value-added generation in both countries. To do this, we use the multiregional input–output matrices developed by the Asian Development Bank (ADB). The results show a growing bilateral relationship between 2000 and 2021, with South Korea having a stronger position by generating a larger share of value-added linked to the bilateral relationship. Nevertheless, the gap has narrowed over time. Notably, South Korean exports to Mexico have substantially contributed to value-added generation in technology-based manufacturing sectors such as machinery, equipment, electronics, electrical, and optical products. Similarly, Mexico’s mining sector increasingly relies on exports to South Korea for value-added generation. The trends observed in this study’s findings persist even amidst the reconfiguration of Global Value Chains, indicating that a free trade agreement between Mexico and South Korea has the potential to further enhance value-added generation.

1. Introduction

The decline in trade, transportation, and information costs has sparked the proliferation of international production fragmentation since the 1990s [1]. This trend has facilitated the formation of Global Value Chains (GVCs), wherein different countries undertake specific stages of a unified production process. A value chain comprises the ensemble of processes and activities required for a product or service to move through all stages of production, from conception to final sale to the consumer [2]. Recently, the trade war between the United States and China, supply chain bottlenecks, and the military conflict between Russia and Ukraine have prompted a reconfiguration of GVCs. This reconfiguration aims to bring production closer to the final consumer, giving rise to a phenomenon known as Nearshoring.

The trade relationship between Mexico and South Korea has thrived in this context. While official relations between the two countries have existed for over sixty years, their economic ties only began to significantly strengthen in the 1990s. This shift was primarily due to the liberalization of the Mexican economy, which culminated with the implementation of the North American Free Trade Agreement (NAFTA) in 1994. This agreement established Mexico as a pivotal gateway to the US market and set the stage for enhanced economic and commercial cooperation. At present, both countries are negotiating a potential free trade agreement.

Previous studies that analyze the trade relationship between Mexico and South Korea employ indicators or econometric models that utilize gross trade data. This article is innovative as it examines the trade link between both countries from the trade in value-added perspective. This viewpoint allows us to identify the sectors reaping the most benefits from value-added generation in both countries. Additionally, it enables us to estimate the significance of the final demand of third countries in the bilateral relationship. To accomplish this, we employ the global input–output model and adapt the method proposed by Borin and Mancini [3] to dissect gross exports into their value-added components. To the best of our knowledge, this is the first study that analyzes the bilateral trade relationship between Mexico and South Korea using the trade in value-added approach.

This study is part of an emerging line of research that examines trade relations between two countries from a trade in value-added perspective. Most of these investigations focus on analyzing the bilateral relations of the United States and China with their respective trading partners. Notable examples include Li and Chen [4], who studied the trade link between the United States and China; Castro and Cardozo-Medeiros [5], who explored the relationship between the United States and Mexico; Murillo-Villanueva [6], who examined the bilateral relationship among North American countries; and Nguyen, Trinh, and Tran [7], who investigated the trade association between China and Vietnam. Our work distinguishes itself from previous studies by utilizing the decomposition proposed by Borin and Mancini [3], which allows us to separate double-counting terms and conduct the analysis with greater detail.

A further contribution of this article is that it encompasses a lengthy period utilizing the Global Input–Output Matrix developed by the Asian Development Bank (ADB) [8]. This matrix provides data for 2000 and the years between 2007 and 2021, thereby allowing for an estimation of the initial effects of the reconfiguration of GVCs on the trade flows between Mexico and South Korea.

The results show a growing bilateral relationship between 2000 and 2021, with South Korea having a stronger position by generating a larger share of value-added linked to the bilateral relationship. Nevertheless, the gap has narrowed over time. The trends observed in this study’s findings persist even amidst the reconfiguration of Global Value Chains, indicating that a free trade agreement between Mexico and South Korea has the potential to further enhance value-added generation.

This document is organized as follows: Section 2 presents relevant stylized facts about the trade relationship between Mexico and South Korea. Section 3 covers methodological aspects, while Section 4 provides a literature review that addresses the trade of both countries from the perspective of trade in value-added. Section 5 presents and analyzes the results obtained from the exercises performed. Finally, Section 6 outlines the main conclusions drawn from these findings.

2. Background

In this section, the trend of gross trade between Mexico and South Korea during the period 2000–2021 is described. The economic, cultural, and social relations between Mexico and South Korea have progressively solidified since 1962, when the countries established official diplomatic ties. Over the years, Mexico has become South Korea’s most significant trading partner in Latin America, while South Korea has evolved into the second-largest source of Asian investment in Mexico and its fourth most crucial trading ally.

Table 1. Gross exports of Mexico and South Korea by exporting category and trading partner share. 2000–2021 (percentages).

Country	Partner	Category	2000	2007–2010	2011–2016	2017–2021
MEX	KOR	Primary sector	0.1	0.3	1.6	4.5
		Manufactures based on natural resources	0.4	0.6	0.8	0.8
		Manufactures based on technology	0.1	0.2	0.3	0.7
		Other activities	0.4	0.5	0.9	0.7
		Total	0.2	0.4	0.7	1.2
	USA	Primary sector	54.5	74.0	65.9	56.8
		Manufactures based on natural resources	79.8	71.2	68.8	72.5
		Manufactures based on technology	86.4	77.1	78.1	77.0
		Other activities	74.0	64.4	66.0	36.5
		Total	80.0	74.4	73.0	70.8
	CHN	Primary sector	0.0	2.0	4.5	5.7
		Manufactures based on natural resources	0.2	0.9	1.3	1.9
		Manufactures based on technology	0.3	1.4	1.5	3.3
		Other activities	0.7	1.1	1.2	2.5
		Total	0.3	1.4	1.9	3.2
KOR	MEX	Primary sector	0.0	0.1	0.1	0.3
		Manufactures based on natural resources	2.1	1.5	1.4	1.9
		Manufactures based on technology	2.4	3.5	2.5	3.4
		Other activities	1.8	1.3	2.4	1.0
		Total	2.2	2.6	2.1	2.5
	USA	Primary sector	6.5	10.9	9.8	12.5
		Manufactures based on natural resources	16.3	10.4	9.2	11.9
		Manufactures based on technology	27.6	11.2	12.3	15.3
		Other activities	19.5	9.0	10.4	8.6
		Total	22.4	10.6	11.0	13.1
	CHN	Primary sector	3.0	9.1	8.5	10.8
		Manufactures based on natural resources	16.9	26.0	22.6	26.2
		Manufactures based on technology	6.4	23.0	26.5	32.9
		Other activities	3.7	8.2	13.3	20.5
		Total	10.0	22.1	23.5	28.7

Source: own elaboration with data from ADB (2023). Note: values from 2007–2010, 2011–2016, and 2017–2021 are annual weighted averages.

presents the gross exports of Mexico and South Korea according to destination countries and industrial categories. The United States remains the primary destination for Mexican exports; however, its significance has diminished from 2000 to 2021, notably in technology-based manufacturing and other sectors. In contrast, South Korea and China, while accounting for a lower share of Mexican exports, have gained prominence in recent years. Concerning exports to South Korea, primary products and technology-based manufacturing are the sectors that have seen the largest increase in their share of Mexico’s gross exports by category.

In 2000, the United States was the top destination for Korean exports, contributing to 22.4% of the total. However, China surpassed the US, becoming the leading destination with a 28.7% share in South Korea’s exports by 2021. This shift can be partly attributed to China’s accession to the World Trade Organization (WTO) in 2001. Concurrently, Mexico experienced a modest rise in its status as a recipient of Korean exports, moving from 2.2% in 2000 to an average of 2.5% during 2017–2021. This trend can be mainly attributed to Mexico’s growth as a destination for technology-based manufacturing exports.

Except for the primary sector, Mexico’s significance as a destination for Korean exports outpaces that of South Korea for Mexican exports. However, it is critical to recognize that Mexico’s demand for Korean exports is fueled not only by domestic consumption but also by the demand from the United States. Additionally, it is worth noting that bilateral trade relations continued to ascend despite trade frictions between the United States and China, the renegotiation of NAFTA, and the COVID-19 crisis. This trend indicates the potential for further expansion in trade flows between South Korea and Mexico.

Figure 1 illustrates the evolution of the trade balances between Mexico and South Korea and their respective trading partners. Mexico demonstrates a growing trade surplus with the United States, offset by a burgeoning trade deficit with China. This results in an overall balance that has oscillated around equilibrium with notable fluctuations over the past four years. Conversely, South Korea typically maintains a trade surplus, but since 2018, it has started to experience a trade deficit with the United States.

Between 2007 and 2021, Mexico sustained a trade deficit with South Korea. However, this deficit remained relatively low throughout the period. A substantial part of the trade with South Korea can be attributed to imports by South Korean-owned companies operating in Mexico. Consequently, this trade deficit does not severely impact the Mexican balance of payments, as these companies are also exporters.

This dynamic has resulted in Mexico emerging as South Korea’s principal trading partner in Latin America, supplanting Panama and Brazil, which traditionally held this position. A remarkable feature of the trade flows between these two economies is the steady growth of intra-industry trade. This trend can be attributed to the escalating influx of South Korean direct investment in Mexico, concentrated in the electronics [9].

The composition of Mexico’s gross exports to South Korea experienced significant transformations between 2000 and 2021. Most notably, there has been a swift rise in mineral exports, from 4.5% in 2000 to 47.4% between 2017 and 2021. Additionally, there was a surge in technology-based manufacturing exports accompanied by a decrease in natural resource-based manufacturing exports (refer to

Table 2. Mexican gross exports to South Korea by exporting categories. 2000–2021 (millions of dollars and percentages).

Category and Sector	2000		2007–2010		2011–2016		2017–2021
	$	%	$	%	$	%	$	%
Primary Sector	22.5	6.7	158.3	16.2	964.8	39.5	2715.7	47.6
Agriculture, hunting, forestry, and fishing	7.5	2.2	4.7	0.5	5.9	0.2	13.3	0.2
Mining and quarrying	15.0	4.5	153.6	15.8	958.9	39.3	2,702.4	47.4
Manufactures based on natural resources	143.0	42.7	428.0	43.9	754.3	30.9	1007.0	17.7
Food, beverages, and tobacco	21.3	6.4	63.7	6.5	87.4	3.6	135.6	2.4
Coke, refined petroleum, and nuclear fuel	3.7	1.1	9.9	1.0	154.6	6.3	254.5	4.5
Chemicals and chemical products	31.9	9.5	26.9	2.8	36.1	1.5	106.6	1.9
Basic and fabricated metals	65.9	19.7	267.7	27.5	258.7	10.6	351.0	6.2
Other manufactures based on natural resources	20.1	6.0	59.8	6.1	217.5	8.9	159.2	2.8
Manufactures based on technology	92.2	27.5	312.0	32.0	544.6	22.3	1766.1	31.0
Machinery and equipment	1.3	0.4	39.5	4.1	95.1	3.9	118.5	2.1
Electronic, electrical, and optical equipment	74.8	22.3	244.3	25.1	335.1	13.7	873.9	15.3
Transport equipment	16.1	4.8	28.1	2.9	114.4	4.7	773.8	13.6
Other activities	77.3	23.1	76.5	7.8	176.1	7.2	210.6	3.7
Renting of M&Eq and other business activities	32.5	9.7	13.8	1.4	75.9	3.1	24.7	0.4
Other	44.9	13.4	62.7	6.4	100.2	4.1	185.9	3.3
Total	335.1	100.0	974.8	100.0	2439.8	100.0	5699.4	100.0

Source: own elaboration with data from ADB (2023). Note: values from 2007–2010, 2011–2016, and 2017–2021 are annual weighted averages.

). Conversely, South Korea’s gross exports to Mexico have consistently been dominated by technology-based manufacturing, predominantly electronics, electrical, and optical equipment (see

Table 3. South Korean gross exports to Mexico by exporting categories. 2000-2021 (millions of dollars and percentages).

Category and Sector	2000		2007–2010		2011–2016		2017–2021
	$	%	$	%	$	%	$	%
Primary Sector	0.1	0.0	0.7	0.0	0.7	0.0	2.4	0.0
Agriculture, hunting, forestry, and fishing	0.1	0.0	0.2	0.0	0.2	0.0	0.8	0.0
Mining and quarrying	0.0	0.0	0.5	0.0	0.5	0.0	1.7	0.0
Manufactures based on natural resources	1477.5	34.7	2154.4	18.2	3158.3	22.4	4447.1	26.4
Food, beverages, and tobacco	4.3	0.1	11.7	0.1	24.9	0.2	13.3	0.1
Coke, refined petroleum, and nuclear fuel	0.1	0.0	195.4	1.6	91.5	0.6	133.0	0.8
Chemicals and chemical products	252.8	5.9	560.7	4.7	861.6	6.1	1717.1	10.2
Basic and fabricated metals	411.8	9.7	987.1	8.3	1507.9	10.7	1803.6	10.7
Other manufactures based on natural resources	808.5	19.0	399.4	3.4	672.5	4.8	780.1	4.6
Manufactures based on technology	2375.3	55.8	8956.5	75.6	8941.4	63.5	11,413.4	67.8
Machinery and equipment	151.6	3.6	525.2	4.4	820.6	5.8	2130.6	12.7
Electronic, electrical, and optical equipment	2120.6	49.8	7624.0	64.3	6360.7	45.2	7125.4	42.3
Transport equipment	103.0	2.4	807.4	6.8	1760.1	12.5	2157.3	12.8
Other activities	403.2	9.5	741.2	6.3	1970.0	14.0	972.4	5.8
Renting of M&Eq and other business activities	208.5	4.9	153.1	1.3	1158.9	8.2	450.4	2.7
Other	194.8	4.6	588.1	5.0	811.1	5.8	522.0	3.1
Total	4256.1	100.0	11,852.8	100.0	14,070.4	100.0	16,835.3	100.0

Source: own elaboration with data from ADB (2023). Note: values from 2007–2010, 2011–2016, and 2017–2021 are annual weighted averages.

).

Trade flows in monetary terms have grown in both directions. The value of exports from Mexico to South Korea has surged at an average annual rate of 19.9%, while Korean exports have grown at a more moderate rate of 4.9%. A potential free trade agreement between the two countries could further bolster this trend. The data also underscore the growing prevalence of intra-industry trade, especially in the metallurgical sector, transportation equipment, and electrical and electronic products.

The transition from NAFTA to the United States-Mexico-Canada Agreement (USMCA), effective from January 2020, has introduced new challenges to the relationship between Mexico and South Korea. The key change involves an increase in the regional content requirement for goods within the automotive industry [10]. This shift has instigated a relocation of production chains, transforming Mexico into a haven for the ‘nearshoring’ process where companies aim to manufacture closer to their primary markets. In this context, Mexico’s proximity to the United States is poised to augment South Korean investments in Mexican territory.

3. Methodology

Traditionally, these types of studies utilize indicators or econometric models such as gravity models. However, they rely on gross trade data that can overestimate the value-added generated by exports. For example, Mexico needs to use a significant amount of foreign inputs to produce its exports of electrical and electronic products, which means that the value-added generated in Mexico is much lower than the gross exports. The method employed in this article permits examining the trade link between Mexico and South Korea from the trade in value-added perspective.

The primary source of information is the global input–output matrix database provided by the Asian Development Bank (ADB-MRIO). This database encompasses 61 countries and data from other global regions, accounting for 35 economic activities. A distinct advantage of this database is its temporal coverage, from 2000 to 2021—except for 2001 to 2006—enabling us to analyze the evolution of the bilateral trade relationship between Mexico and South Korea during phases of boom, stagnation, and reconfiguration of GVCs. The 35 sectors listed in the ADB-MRIO database were organized into several categories: the primary sector, resource-based manufacturing, technology-based manufacturing, and other activities. This classification aligns with the categorization used by Morales-López [11].

In the current research, we adjust the export decomposition proposed by Borin and Mancini [3] to trace the origin and destination of value-added within bilateral exports at the bilateral-sector level. This adjustment will enable an estimation of the significance of various sectors in the bilateral relationship and the influence of third countries, both from a supply standpoint—the generation of traded value-added in the bilateral relationship—and a demand standpoint—the final consumption of traded value-added in the bilateral relationship.

This methodology aligns with scholarly literature that emphasizes analyzing international trade in terms of value-added using input–output analysis. The pioneering work in this research direction is credited to Hummels, Ishii, and Yi [12]. Subsequent studies have further refined the method utilizing global input–output matrices [13,14,15,16,17,18,19,20]. The study by Borin and Mancini [3] is the most comprehensive to date, as it generalizes prior contributions and lucidly defines the concept and measurement of double accounting.

Borin and Mancini [3] propose different approaches for decomposing gross trade flows to delineate the perimeter that classifies trade flows into ‘value-added’ and ‘double counting’. ‘Value-added’ is characterized as the portion that crosses the perimeter’s borders only once, while ‘double counting’ pertains to the value that traverses the perimeter multiple times. This methodology allows for the addressing of various research questions.

In this study, the decomposition is conducted from the viewpoint of the exporting country, such that any value-added exported more than once by the exporting country is deemed double counted. For instance, if Mexico exports iron ore to South Korea, imports bolts and screws made from that same iron from South Korea, and subsequently manufactures and exports a tool incorporating those bolts and screws back to South Korea, we would encounter a situation where the Mexican value-added generated in the iron mining sector is exported twice by Mexico. This results in double counting in Mexico’s gross exports to South Korea.

This perspective encompasses two distinct approaches: source-based and sink-based decompositions. The source-based approach tracks value-added when it first leaves the country of origin, while the sink-based decomposition considers the value-added the last time it crosses national borders. In this study, we adopt the source-based approach, as it specifically focuses on examining the involvement of various countries and sectors in different production processes.

Assuming an input–output model comprised of N countries and n sectors, our method begins with the classical analysis proposed by Leontief [21]:

$$\left[\begin{array}{c}{\mathrm{X}}_{\mathrm{s}}\\ {\mathrm{X}}_{\mathrm{r}}\\ {\mathrm{X}}_{\mathrm{t}}\end{array}\right]=\left[\begin{array}{ccc}{\mathrm{A}}_{\mathrm{s}\mathrm{s}}& {\mathrm{A}}_{\mathrm{s}\mathrm{r}}& {\mathrm{A}}_{\mathrm{s}\mathrm{t}}\\ {\mathrm{A}}_{\mathrm{r}\mathrm{s}}& {\mathrm{A}}_{\mathrm{r}\mathrm{r}}& {\mathrm{A}}_{\mathrm{r}\mathrm{t}}\\ {\mathrm{A}}_{\mathrm{t}\mathrm{s}}& {\mathrm{A}}_{\mathrm{t}\mathrm{r}}& {\mathrm{A}}_{\mathrm{t}\mathrm{t}}\end{array}\right]\left[\begin{array}{c}{\mathrm{X}}_{\mathrm{s}}\\ {\mathrm{X}}_{\mathrm{r}}\\ {\mathrm{X}}_{\mathrm{t}}\end{array}\right]+\left[\begin{array}{c}{\mathrm{Y}}_{\mathrm{s}\mathrm{s}}+{\mathrm{Y}}_{\mathrm{s}\mathrm{r}}+{\mathrm{Y}}_{\mathrm{s}\mathrm{t}}\\ {\mathrm{Y}}_{\mathrm{r}\mathrm{s}}+{\mathrm{Y}}_{\mathrm{r}\mathrm{r}}+{\mathrm{Y}}_{\mathrm{r}\mathrm{t}}\\ {\mathrm{Y}}_{\mathrm{t}\mathrm{s}}+{\mathrm{Y}}_{\mathrm{t}\mathrm{r}}+{\mathrm{Y}}_{\mathrm{t}\mathrm{t}}\end{array}\right]$$

(1)

Here, X_s and X_r represent n × 1 gross production vectors, and X_t is an (nN − n2) × 1 vector. The subscript “t” indicates the rest of the countries, excluding “s” and “r”. A_ss, A_sr, A_rs, and A_rr are submatrices of the Leontief coefficient matrix (A), each with an order of nxn. A_st and A_rt, on the other hand, have an order of n × (nN − n2), while A_ts and A_tr have an order of (nN − n2) × n, and A_tt has an order of (nN − n2) × (nN − n2). Y_ss, Y_sr, Y_st, Y_rs, Y_rr, and Y_rt represent n × 1 final demand vectors (Y), whereas Y_ts, Y_tr, and Y_tt are vectors with an order of (nN − n2) × 1. Solving the model using Equation (1) for X_N yields:

$$\left[\begin{array}{c}{\mathrm{X}}_{\mathrm{s}}\\ {\mathrm{X}}_{\mathrm{r}}\\ {\mathrm{X}}_{\mathrm{t}}\end{array}\right]={\left[\begin{array}{ccc}{\mathrm{I}-\mathrm{A}}_{\mathrm{s}\mathrm{s}}& {-\mathrm{A}}_{\mathrm{s}\mathrm{r}}& {-\mathrm{A}}_{\mathrm{s}\mathrm{t}}\\ {-\mathrm{A}}_{\mathrm{r}\mathrm{s}}& {\mathrm{I}-\mathrm{A}}_{\mathrm{r}\mathrm{r}}& -{\mathrm{A}}_{\mathrm{r}\mathrm{t}}\\ -{\mathrm{A}}_{\mathrm{t}\mathrm{s}}& -{\mathrm{A}}_{\mathrm{t}\mathrm{r}}& \mathrm{I}-{\mathrm{A}}_{\mathrm{t}\mathrm{t}}\end{array}\right]}^{-1}\left[\begin{array}{c}{\mathrm{Y}}_{\mathrm{s}\mathrm{s}}+{\mathrm{Y}}_{\mathrm{s}\mathrm{r}}+{\mathrm{Y}}_{\mathrm{s}\mathrm{t}}\\ {\mathrm{Y}}_{\mathrm{r}\mathrm{s}}+{\mathrm{Y}}_{\mathrm{r}\mathrm{r}}+{\mathrm{Y}}_{\mathrm{r}\mathrm{t}}\\ {\mathrm{Y}}_{\mathrm{t}\mathrm{s}}+{\mathrm{Y}}_{\mathrm{t}\mathrm{r}}+{\mathrm{Y}}_{\mathrm{t}\mathrm{t}}\end{array}\right]=\left[\begin{array}{ccc}{\mathrm{B}}_{\mathrm{s}\mathrm{s}}& {\mathrm{B}}_{\mathrm{s}\mathrm{r}}& {\mathrm{B}}_{\mathrm{s}\mathrm{t}}\\ {\mathrm{B}}_{\mathrm{r}\mathrm{s}}& {\mathrm{B}}_{\mathrm{r}\mathrm{r}}& {\mathrm{B}}_{\mathrm{r}\mathrm{t}}\\ {\mathrm{B}}_{\mathrm{t}\mathrm{s}}& {\mathrm{A}}_{\mathrm{t}\mathrm{r}}& {\mathrm{B}}_{\mathrm{t}\mathrm{t}}\end{array}\right]\left[\begin{array}{c}{\mathrm{Y}}_{\mathrm{s}}\\ {\mathrm{Y}}_{\mathrm{r}}\\ {\mathrm{Y}}_{\mathrm{t}}\end{array}\right]$$

(2)

Here, B_ss, B_sr, B_rs, and B_rr are submatrices of the global Leontief inverse matrix (B), each with an order of nxn. B_st and B_rt have an order of n × (nN − n2), while B_ts and B_tr have an order of (nN − n2) × n, and _Btt has an order of (nN − n2) × (nN − n2). Y_s and Y_r represent n × 1 vectors of final demand, while Y_t is of order (nN − n2) × 1. ‘I’ denotes an identity matrix of the necessary order to perform the specified operation. The global Leontief inverse matrix identifies the total gross output each country generates to produce one unit of exports from any given country.

Exports from country ‘s’ to country ‘r’ can be decomposed based on the initial producer of each component using the global Leontief inverse matrix:

$${\mathrm{U}}_{\mathrm{N}}{\mathrm{E}}_{\mathrm{s}\mathrm{r}}={\mathrm{V}}_{\mathrm{s}}{\mathrm{B}}_{\mathrm{s}\mathrm{s}}{\mathrm{E}}_{\mathrm{s}\mathrm{r}}+{\displaystyle \sum _{\mathrm{t}\ne \mathrm{s}}^{\mathrm{N}}}{\mathrm{V}}_{\mathrm{t}}{\mathrm{B}}_{\mathrm{t}\mathrm{s}}{\mathrm{E}}_{\mathrm{s}\mathrm{r}}$$

(3)

In this model, UN is the 1xn unit row vector, V_s is an nx1 vector representing the value-added shares of country ‘s’, E_sr is an nx1 vector containing gross exports from country ‘s’ to country ‘r’, and V_t is an nx1 vector with the value-added shares of countries ‘t’, including ‘r’. The first term of Equation (3) symbolizes the domestic content of gross exports from country ‘s’ to ‘r’, while the second term signifies the foreign content.

To distinguish between value-added and double accounting, the production process can be fragmented along the external borders of the exporting country, referred to here as ‘s’. Algebraically, this can be achieved by setting the coefficients of matrix A that denote the direct requirement of intermediate inputs from country ‘s’ to zero. This procedure is grounded in the hypothetical extraction method [22]. As such, Equation (4) portrays the global inverse Leontief matrix following extraction:

$${\mathrm{B}}^{\sout{\mathrm{s}}}={\left(\mathrm{I}-{\mathrm{A}}^{\sout{\mathrm{s}}}\right)}^{-1}$$

(4)

Moreover, in global input–output models, there are equivalences that establish a relationship between the matrix of technical coefficients (A) and the Leontief inverse (B):

$${\mathrm{B}}_{\mathrm{i}\mathrm{s}}={\mathrm{B}}_{\mathrm{i}\mathrm{s}}^{\sout{\mathrm{s}}}+{\mathrm{B}}_{\mathrm{i}\mathrm{s}}^{\sout{\mathrm{s}}}\sum _{\mathrm{j}\ne \mathrm{s}}{\mathrm{A}}_{\mathrm{s}\mathrm{j}}{\mathrm{B}}_{\mathrm{j}\mathrm{s}}$$

(5)

Here, “i” could represent either country ‘s’ or a different country. Notably, the submatrix ${\mathrm{B}}_{\mathrm{s}\mathrm{s}}^{\sout{\mathrm{s}}}$_s of the matrix B_s equals the local Leontief matrix of the country ‘s’ [3]. Utilizing the local Leontief matrix enables the calculation of domestic value-added contained in exports by solely considering domestic stages of production and isolating any domestic content that may be present in imported inputs. Taking Equation (5) into consideration, Equation (3) can be further disaggregated as follows:

$${\mathrm{U}}_{\mathrm{N}}{\mathrm{E}}_{\mathrm{s}\mathrm{r}}={\mathrm{V}}_{\mathrm{s}}{\mathrm{B}}_{\mathrm{s}\mathrm{s}}^{\sout{\mathrm{s}}}{\mathrm{E}}_{\mathrm{s}\mathrm{r}}+{\mathrm{V}}_{\mathrm{s}}{\mathrm{B}}_{\mathrm{s}\mathrm{s}}^{\sout{\mathrm{s}}}\sum _{\mathrm{j}\ne \mathrm{s}}{\mathrm{A}}_{\mathrm{s}\mathrm{j}}{\mathrm{B}}_{\mathrm{j}\mathrm{s}}{\mathrm{E}}_{\mathrm{s}\mathrm{r}}+\sum _{\mathrm{t}\ne \mathrm{s}}^{\mathrm{N}}{\mathrm{V}}_{\mathrm{t}}{\mathrm{B}}_{\mathrm{t}\mathrm{s}}^{\sout{\mathrm{s}}}{\mathrm{E}}_{\mathrm{s}\mathrm{r}}+\sum _{\mathrm{t}\ne \mathrm{s}}^{\mathrm{N}}{\mathrm{V}}_{\mathrm{t}}{\mathrm{B}}_{\mathrm{t}\mathrm{s}}^{\sout{\mathrm{s}}}\sum _{\mathrm{j}\ne \mathrm{s}}{\mathrm{A}}_{\mathrm{s}\mathrm{j}}{\mathrm{B}}_{\mathrm{j}\mathrm{s}}{\mathrm{E}}_{\mathrm{s}\mathrm{r}}$$

(6)

In this case, the first term is the domestic value-added generated in country ‘s’ and included in the gross exports to country ‘r’. The following term represents domestic double counting. The third term is the foreign value-added contained in the gross exports from ‘s’ to ‘r’, while the fourth represents foreign double counting.

Thus far, the decomposition of gross exports from country ‘s’ to ‘r’ has been conducted from the perspective of the origin of value-added. However, it is equally important to consider the final destination. Utilizing Equation (1), the bilateral gross exports from country ‘s’ to country ‘r’ can be broken down into final goods and intermediate goods:

$${\mathrm{E}}_{\mathrm{s}\mathrm{r}}={\mathrm{Y}}_{\mathrm{s}\mathrm{r}}+{\mathrm{A}}_{\mathrm{s}\mathrm{r}}{\mathrm{X}}_{\mathrm{r}}$$

(7)

The first term represents the exports of final goods and services, while the second term signifies the exports of intermediate goods and services from country ‘s’ to country ‘r’. Following Wang, Wei, and Zhu’s [16] analysis, the intermediate exports from country ‘s’ to country ‘r’ can be broken down based on the route they follow in the production chain and the final destination country:

$${\mathrm{A}}_{\mathrm{s}\mathrm{r}}{\mathrm{X}}_{\mathrm{r}}={\mathrm{A}}_{\mathrm{s}\mathrm{r}}{\mathrm{B}}_{\mathrm{r}\mathrm{r}}{\mathrm{Y}}_{\mathrm{r}\mathrm{r}}+{\mathrm{A}}_{\mathrm{s}\mathrm{r}}\sum _{\mathrm{t}\ne \mathrm{s},\mathrm{r}}^{\mathrm{N}}{\mathrm{B}}_{\mathrm{r}\mathrm{t}}{\mathrm{Y}}_{\mathrm{t}\mathrm{t}}+{\mathrm{A}}_{\mathrm{s}\mathrm{r}}{\mathrm{B}}_{\mathrm{r}\mathrm{r}}\sum _{\mathrm{t}\ne \mathrm{s},\mathrm{r}}^{\mathrm{N}}{\mathrm{Y}}_{\mathrm{r}\mathrm{t}}+{\mathrm{A}}_{\mathrm{s}\mathrm{r}}\sum _{\mathrm{t}\ne \mathrm{s},\mathrm{r}}^{\mathrm{N}}{\mathrm{B}}_{\mathrm{r}\mathrm{t}}\sum _{\mathrm{w}\ne \mathrm{s},\mathrm{t}}^{\mathrm{N}}{\mathrm{Y}}_{\mathrm{t}\mathrm{w}}+{\mathrm{A}}_{\mathrm{s}\mathrm{r}}{\mathrm{B}}_{\mathrm{r}\mathrm{r}}{\mathrm{Y}}_{\mathrm{r}\mathrm{s}}+{\mathrm{A}}_{\mathrm{s}\mathrm{r}}\sum _{\mathrm{t}\ne \mathrm{s},\mathrm{r}}^{\mathrm{N}}{\mathrm{B}}_{\mathrm{r}\mathrm{t}}{\mathrm{Y}}_{\mathrm{t}\mathrm{s}}+{\mathrm{A}}_{\mathrm{s}\mathrm{r}}{\mathrm{B}}_{\mathrm{r}\mathrm{s}}{\mathrm{Y}}_{\mathrm{s}\mathrm{s}}+{\mathrm{A}}_{\mathrm{s}\mathrm{r}}{\mathrm{B}}_{\mathrm{r}\mathrm{s}}\sum _{\mathrm{t}\ne \mathrm{s}}^{\mathrm{N}}{\mathrm{Y}}_{\mathrm{s}\mathrm{t}}$$

(8)

The first term corresponds to inputs exported from country ‘s’ that are used by country ‘r’ to produce its final goods. Conversely, terms two through eight encompass the inputs exported from country ‘s’ that are used by country ‘r’ to manufacture goods for export to the world, which includes country ‘s’. By grouping these eight terms, Equation (8) can be reformulated as follows:

$${\mathrm{A}}_{\mathrm{s}\mathrm{r}}{\mathrm{X}}_{\mathrm{r}}={\mathrm{A}}_{\mathrm{s}\mathrm{r}}\sum _{\mathrm{t}}^{\mathrm{N}}\sum _{\mathrm{g}}^{\mathrm{N}}{{\mathrm{B}}_{\mathrm{r}\mathrm{t}}\mathrm{Y}}_{\mathrm{t}\mathrm{g}}$$

(9)

Borin and Mancini [3] propose that domestic value-added, which crosses international borders more than once, is tied to the dynamics of GVCs, whereas the value that crosses just once is associated with traditional or Ricardian trade. By applying Equation (7), considering the paths through which value-added traverses as outlined in Equations (8) and (9), and the properties of the local Leontief matrix, the first term of Equation (6) can be disaggregated based on the type of trade:

$${\mathrm{V}}_{\mathrm{s}}{\mathrm{B}}_{\mathrm{s}\mathrm{s}}^{\sout{\mathrm{s}}}{\mathrm{E}}_{\mathrm{s}\mathrm{r}}={\mathrm{V}}_{\mathrm{s}}{\mathrm{B}}_{\mathrm{s}\mathrm{s}}^{\sout{\mathrm{s}}}{\mathrm{Y}}_{\mathrm{s}\mathrm{r}}+{\mathrm{V}}_{\mathrm{s}}{\mathrm{B}}_{\mathrm{s}\mathrm{s}}^{\sout{\mathrm{s}}}{\mathrm{A}}_{\mathrm{s}\mathrm{r}}{\mathrm{B}}_{\mathrm{r}\mathrm{r}}^{\sout{\mathrm{r}}}{\mathrm{Y}}_{\mathrm{r}\mathrm{r}}+{\mathrm{V}}_{\mathrm{s}}{\mathrm{B}}_{\mathrm{s}\mathrm{s}}^{\sout{\mathrm{s}}}{\mathrm{A}}_{\mathrm{s}\mathrm{r}}{\mathrm{B}}_{\mathrm{r}\mathrm{r}}^{\sout{\mathrm{r}}}\sum _{\mathrm{t}\ne \mathrm{r}}^{\mathrm{N}}{\mathrm{Y}}_{\mathrm{r}\mathrm{t}}+{\mathrm{V}}_{\mathrm{s}}{\mathrm{B}}_{\mathrm{s}\mathrm{s}}^{\sout{\mathrm{s}}}{\mathrm{A}}_{\mathrm{s}\mathrm{r}}{\mathrm{B}}_{\mathrm{r}\mathrm{r}}^{\mathrm{r}}\sum _{\mathrm{j}\ne \mathrm{r}}^{\mathrm{N}}\sum _{\mathrm{g}}^{\mathrm{N}}\sum _{\mathrm{t}}^{\mathrm{N}}{\mathrm{A}}_{\mathrm{r}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{t}}$$

(10)

The first term identifies the value-added of country ‘s’ embedded in the traditional exports of final goods and services to country ‘r’. These are fully produced by country ‘s’ and consumed in country ‘r’. The second term signifies the value-added of country ‘s’ contained in the traditional exports of inputs to country ‘r’. Essentially, these are intermediate products used to produce final goods and services in country ‘r’. According to the concept defined by Borin and Mancini [3], these first two terms constitute traditional trade.

Meanwhile, the third and fourth terms are the value-added of the country “s” incorporated in the exports to country “r” associated with GVCs dynamics. In both cases, the country “r” exports the value-added imported from “s” to other countries for further processing or final consumption. It is important to note that all the foreign value-added embedded in exports from “s” to “r” are related to GVCs since it crosses international borders at least two times. Using the equations above, in this research, we employed the following decomposition of Mexico’s gross exports to South Korea (the attached

Table A1. Decomposition of South Korea’s gross exports to Mexico, according to the origin and final destination of value-added.

Term	Mathematical Expression	Description
T1	${\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{Y}}_{\mathrm{k}\mathrm{m}}+{\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{Y}}_{\mathrm{m}\mathrm{m}}$	South Korean Value-added (SKVA) embedded in traditional exports of intermediate and final products from South Korea to Mexico.
T2	${\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{Y}}_{\mathrm{m}\mathrm{k}}+{\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\displaystyle {\displaystyle \sum _{\mathrm{j}\ne \mathrm{m}}^{\mathrm{N}}}}{\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}{\mathrm{A}}_{\mathrm{m}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{k}}$	SKVA embedded in GVC-related exports from South Korea to Mexico, finally consumed in South Korea.
T3	${\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\displaystyle \sum _{\mathrm{j}\ne \mathrm{m}}^{\mathrm{N}}}{\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}{\mathrm{A}}_{\mathrm{m}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{m}}$	SKVA embedded in GVC-related exports from South Korea to Mexico, finally consumed in Mexico.
T4	${\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{Y}}_{\mathrm{m}\mathrm{u}}+{\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\displaystyle \sum _{\mathrm{j}\ne \mathrm{m}}^{\mathrm{N}}}{\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}{\mathrm{A}}_{\mathrm{m}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{u}}$	SKVA embedded in GVC-related exports from South Korea to Mexico, finally consumed in the United States.
T5	${\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{Y}}_{\mathrm{m}\mathrm{c}\mathrm{h}}+{\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\displaystyle \sum _{\mathrm{j}\ne \mathrm{m}}^{\mathrm{N}}}{\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}{\mathrm{A}}_{\mathrm{m}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{c}\mathrm{h}}$	SKVA embedded in GVC-related exports from South Korea to Mexico, finally consumed in China.
T6	${\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{Y}}_{\mathrm{m}\mathrm{j}\mathrm{p}}+{\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\displaystyle \sum _{\mathrm{j}\ne \mathrm{m}}^{\mathrm{N}}}{\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}{\mathrm{A}}_{\mathrm{m}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{j}\mathrm{p}}$	SKVA embedded in GVC-related exports from South Korea to Mexico, finally consumed in Japan.
T7	${\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{Y}}_{\mathrm{m}\mathrm{d}}+{\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\displaystyle \sum _{\mathrm{j}\ne \mathrm{m}}^{\mathrm{N}}}{\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}{\mathrm{A}}_{\mathrm{m}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{d}}$	SKVA embedded in GVC-related exports from South Korea to Mexico, finally consumed in Germany.
T8	${\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{Y}}_{\mathrm{m}\mathrm{c}}+{\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\displaystyle \sum _{\mathrm{j}\ne \mathrm{m}}^{\mathrm{N}}}{\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}{\mathrm{A}}_{\mathrm{m}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{c}}$	SKVA embedded in GVC-related exports from South Korea to Mexico, finally consumed in Canada.
T9	${\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\displaystyle \sum _{\mathrm{t}\ne \mathrm{k},\mathrm{m},\mathrm{u},\mathrm{c}\mathrm{h},\mathrm{j}\mathrm{p},\mathrm{d},\mathrm{c}}^{\mathrm{N}}}{\mathrm{Y}}_{\mathrm{m}\mathrm{t}}+{\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{A}}_{\mathrm{k}\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\displaystyle \sum _{\mathrm{j}\ne \mathrm{r}}^{\mathrm{N}}}{\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}{\displaystyle \sum _{\mathrm{t}\ne \mathrm{k},\mathrm{m},\mathrm{u},\mathrm{c}\mathrm{h},\mathrm{j}\mathrm{p},\mathrm{d},\mathrm{c}}^{\mathrm{N}}}{\mathrm{A}}_{\mathrm{m}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{t}}$	SKVA embedded in GVC-related exports from South Korea to Mexico, finally consumed in the rest of the world.
T10	${\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{E}}_{\mathrm{k}\mathrm{m}}$	Foreign value-added generated in Mexico embedded in South Korea’s GVC-related exports to Mexico, finally consumed in any country.
T11	${\displaystyle \sum _{\mathrm{t}\ne \mathrm{k},\mathrm{m}}^{\mathrm{N}}}{\mathrm{V}}_{\mathrm{t}}{\mathrm{B}}_{\mathrm{t}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{E}}_{\mathrm{k}\mathrm{m}}$	Foreign value-added generated in the rest of the world embedded in South Korea’s GVC-related exports to Mexico, finally consumed in any country.
T12	${\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}\sum _{\mathrm{j}\ne \mathrm{k}}{\mathrm{A}}_{\mathrm{k}\mathrm{j}}{\mathrm{B}}_{\mathrm{j}\mathrm{k}}{\mathrm{E}}_{\mathrm{k}\mathrm{m}}+{\displaystyle \sum _{\mathrm{t}\ne \mathrm{k}}^{\mathrm{N}}}{\mathrm{V}}_{\mathrm{t}}{\mathrm{B}}_{\mathrm{t}\mathrm{k}}^{\sout{\mathrm{m}}}\sum _{\mathrm{j}\ne \mathrm{k}}{\mathrm{A}}_{\mathrm{k}\mathrm{j}}{\mathrm{B}}_{\mathrm{j}\mathrm{k}}{\mathrm{E}}_{\mathrm{k}\mathrm{m}}$	Double counting of South Korean and foreign origin embedded in South Korea’s exports to Mexico, finally consumed in any country.

Source: own elaboration based on Borin and Mancini (2023). Note: the subscript “m” refers to Mexico, “k” to South Korea, “u” to the United States, “ch” to China, “jp” to Japan, “d” to Germany, and “c” to Canada.

contains the breakdown of gross exports from South Korea to Mexico according to the origin and final destination of value-added).

In the context of international production fragmentation, third countries are involved in a bilateral trade relationship. The decomposition presented in this study considers that the United States, China, Japan, Germany, and Canada are the main third countries involved in the bilateral trade relationship between Mexico and South Korea (see

Table 4. Decomposition of Mexico’s gross exports to South Korea, according to the origin and final destination of value-added.

Term	Mathematical Expression	Description
T1	${\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{Y}}_{\mathrm{m}\mathrm{k}}+{\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{Y}}_{\mathrm{k}\mathrm{k}}$	Mexican Value-added (MVA) embedded in traditional exports of intermediate and final products from Mexico to South Korea.
T2	${\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{Y}}_{\mathrm{k}\mathrm{m}}+{\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\displaystyle {\displaystyle \sum _{\mathrm{j}\ne \mathrm{k}}^{\mathrm{N}}}}{\displaystyle {\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}}{\mathrm{A}}_{\mathrm{k}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{m}}$	MVA embedded in GVC-related exports from Mexico to South Korea, finally consumed in Mexico.
T3	${\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\displaystyle {\displaystyle \sum _{\mathrm{j}\ne \mathrm{k}}^{\mathrm{N}}}}{\displaystyle {\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}}{\mathrm{A}}_{\mathrm{k}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{k}}$	MVA embedded in GVC-related exports from Mexico to South Korea, finally consumed in South Korea.
T4	${\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{Y}}_{\mathrm{k}\mathrm{u}}+{\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\displaystyle \sum _{\mathrm{j}\ne \mathrm{k}}^{\mathrm{N}}}{\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}{\mathrm{A}}_{\mathrm{k}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{u}}$	MVA embedded in GVC-related exports from Mexico to South Korea, finally consumed in the United States.
T5	${\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{Y}}_{\mathrm{k}\mathrm{c}\mathrm{h}}+{\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\displaystyle \sum _{\mathrm{j}\ne \mathrm{k}}^{\mathrm{N}}}{\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}{\mathrm{A}}_{\mathrm{k}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{c}\mathrm{h}}$	MVA embedded in GVC-related exports from Mexico to South Korea, finally consumed in China.
T6	${\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{Y}}_{\mathrm{k}\mathrm{j}\mathrm{p}}+{\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\displaystyle \sum _{\mathrm{j}\ne \mathrm{k}}^{\mathrm{N}}}{\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}{\mathrm{A}}_{\mathrm{k}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{j}\mathrm{p}}$	MVA embedded in GVC-related exports from Mexico to South Korea, finally consumed in Japan.
T7	${\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{Y}}_{\mathrm{k}\mathrm{d}}+{\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\displaystyle \sum _{\mathrm{j}\ne \mathrm{k}}^{\mathrm{N}}}{\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}{\mathrm{A}}_{\mathrm{k}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{d}}$	MVA embedded in GVC-related exports from Mexico to South Korea, finally consumed in Germany.
T8	${\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\mathrm{Y}}_{\mathrm{k}\mathrm{c}}+{\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\displaystyle \sum _{\mathrm{j}\ne \mathrm{k}}^{\mathrm{N}}}{\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}{\mathrm{A}}_{\mathrm{k}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{c}}$	MVA embedded in GVC-related exports from Mexico to South Korea, finally consumed in Canada.
T9	${\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\displaystyle \sum _{\mathrm{t}\ne \mathrm{m},\mathrm{k},\mathrm{u},\mathrm{c}\mathrm{h},\mathrm{j}\mathrm{p},\mathrm{d},\mathrm{c}}^{\mathrm{N}}}{\mathrm{Y}}_{\mathrm{k}\mathrm{t}}+{\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{k}}^{\sout{\mathrm{k}}}{\displaystyle \sum _{\mathrm{j}\ne \mathrm{r}}^{\mathrm{N}}}{\displaystyle \sum _{\mathrm{g}}^{\mathrm{N}}}{\displaystyle \sum _{\mathrm{t}\ne \mathrm{m},\mathrm{k},\mathrm{u},\mathrm{c}\mathrm{h},\mathrm{j}\mathrm{p},\mathrm{d},\mathrm{c}}^{\mathrm{N}}}{\mathrm{A}}_{\mathrm{k}\mathrm{j}}{{\mathrm{B}}_{\mathrm{j}\mathrm{g}}\mathrm{Y}}_{\mathrm{g}\mathrm{t}}$	MVA embedded in GVC-related exports from Mexico to South Korea, finally consumed in the rest of the world.
T10	${\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{E}}_{\mathrm{m}\mathrm{k}}$	Foreign value-added generated in South Korea embedded in Mexico’s GVC-related exports to South Korea, finally consumed in any country.
T11	${\displaystyle \sum _{\mathrm{t}\ne \mathrm{m},\mathrm{k}}^{\mathrm{N}}}{\mathrm{V}}_{\mathrm{t}}{\mathrm{B}}_{\mathrm{t}\mathrm{m}}^{\sout{\mathrm{m}}}{\mathrm{E}}_{\mathrm{m}\mathrm{k}}$	Foreign value-added generated in the rest of the world embedded in Mexico’s GVC-related exports to South Korea, finally consumed in any country.
T12	${\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}{\displaystyle \sum _{\mathrm{j}\ne \mathrm{m}}}{\mathrm{A}}_{\mathrm{m}\mathrm{j}}{\mathrm{B}}_{\mathrm{j}\mathrm{m}}{\mathrm{E}}_{\mathrm{m}\mathrm{k}}+{\displaystyle \sum _{\mathrm{t}\ne \mathrm{m}}^{\mathrm{N}}}{\mathrm{V}}_{\mathrm{t}}{\mathrm{B}}_{\mathrm{t}\mathrm{m}}^{\sout{\mathrm{m}}}\sum _{\mathrm{j}\ne \mathrm{m}}{\mathrm{A}}_{\mathrm{m}\mathrm{j}}{\mathrm{B}}_{\mathrm{j}\mathrm{m}}{\mathrm{E}}_{\mathrm{m}\mathrm{k}}$	Double counting of Mexican and foreign origin embedded in Mexico’s exports to South Korea, finally consumed in any country.

Source: own elaboration based on Borin and Mancini [3]. Note: the subscript “m” refers to Mexico, “k” to South Korea, “u” to the United States, “ch” to China, “jp” to Japan, “d” to Germany, and “c” to Canada.

). Additionally, it should be noted that the decomposition can be expanded or reduced according to other research questions. For example, T11 can be broken down based on the countries of origin of foreign value-added.

The decomposition presented above can be easily extended to consider the sectoral dimension using two different sectoral breakdowns: by sector of origin of the value-added and by the sector that carries out the exports. This differentiation is valuable as it allows us to assess the importance of sectors in exports, both in terms of value-added generated by exporting sectors and value-added generated by sectors supplying inputs for exportation. To obtain a decomposition by sectors of origin, it is necessary to substitute ${\mathrm{V}}_{\mathrm{m}}$, ${\mathrm{V}}_{\mathrm{k}}$, and $\sum _{\mathrm{t}\ne \mathrm{m},\mathrm{k}}^{\mathrm{N}}{\mathrm{V}}_{\mathrm{t}}$ with their diagonalized forms. In the same vein, to obtain a decomposition by exporting sectors, it is necessary to substitute ${\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}$, ${\mathrm{V}}_{\mathrm{k}}{\mathrm{B}}_{\mathrm{k}\mathrm{m}}^{\sout{\mathrm{m}}}$, and $\sum _{\mathrm{t}\ne \mathrm{m},\mathrm{k}}^{\mathrm{N}}{\mathrm{V}}_{\mathrm{t}}{\mathrm{B}}_{\mathrm{t}\mathrm{m}}^{\sout{\mathrm{m}}}$ with their diagonalized forms. The only exception is the sectoral breakdown of the double-counting component, where it is necessary to diagonalize ${\mathrm{V}}_{\mathrm{m}}{\mathrm{B}}_{\mathrm{m}\mathrm{m}}^{\sout{\mathrm{m}}}\sum _{\mathrm{j}\ne \mathrm{m}}{\mathrm{A}}_{\mathrm{m}\mathrm{j}}{\mathrm{B}}_{\mathrm{j}\mathrm{m}}$ and $\sum _{\mathrm{t}\ne \mathrm{m}}^{\mathrm{N}}{\mathrm{V}}_{\mathrm{t}}{\mathrm{B}}_{\mathrm{t}\mathrm{m}}^{\sout{\mathrm{m}}}\sum _{\mathrm{j}\ne \mathrm{m}}{\mathrm{A}}_{\mathrm{m}\mathrm{j}}{\mathrm{B}}_{\mathrm{j}\mathrm{m}}$ [3]. The same logic is applied to the decomposition of South Korea’s gross exports to Mexico, presented in Table A1.

Finally, it is essential to highlight that the global input–output analysis has limitations. The first limitation is associated with using proportionality in allocating intermediate inputs to the production of different sectors [23]. Additionally, due to discrepancies in countries’ national accounts, adjustments are made to the matrix of technical coefficients through a balancing method in compiling global matrices [24]. The third limitation relates to the assumption of constant returns to scale [25]. These limitations reduce their relevance in ex-post analyses that consider more than one year due to the changes in the production function from year to year [18].

4. Literature Review

The trade in value-added perspective has been widely utilized to explore the features of Mexico and South Korea’s integration into global value chains (GVCs). This section summarizes the key findings from previous studies that have employed this approach to assess the trade links of both countries. Firstly, research conducted on Mexico is presented, followed by those focusing on South Korea.

De la Cruz, et al. [26] analyzed the foreign value-added (FVA) in Mexico’s manufacturing exports. Utilizing data from the Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO), the authors estimated that the FVA in Mexico’s manufacturing exports averaged 37% between 1995 and 2005. Furthermore, they observed a decline in the value-added from OECD countries in Mexican exports, whereas the value-added from Asian countries increased. The findings suggest that shifts in production structures and international trade have influenced Mexico’s participation in GVCs. They highlight the significance of policies that boost the competitiveness of the Mexican economy in the context of globalization. Overall, the study provides a valuable assessment of Mexico’s participation in GVCs and emphasizes the importance of estimating the FVA in exports for understanding the impact of international trade on the economy.

Fujii-Gambero and Cervantes [27] investigate the connection between Mexico’s manufacturing exports and the rest of the economy. They found that the proportion of indirect value-added incorporated in manufacturing exports is low, suggesting weak linkages between exporting firms and the rest of the manufacturing companies. This trend is even more pronounced in the maquiladora industry exports. The study indicates that the maquiladora sector has been unsuccessful in increasing the use of domestic inputs for its production of exports.

Chiquiar and Tobal [28] scrutinized global value chains (GVCs) from a historical perspective. Their work traced the trajectory of GVCs from the 1980s to the present day, focusing on Mexico. They underscored the crucial role of the maquiladora industry, which flourished from the 1960s and saw exponential growth in subsequent decades. The maquiladora industry facilitated Mexico’s entry into GVCs by producing export goods in conjunction with foreign firms. However, the authors pointed out an uneven participation in GVCs for Mexico as the country was mostly relegated to manufacturing low-value-added products. Their work provides an enlightening historical viewpoint on Mexico’s role in the international production fragmentation dynamics, emphasizing the significance of Mexico’s pattern of integration into GVCs for its economic development.

Ruiz Nápoles [29] explored the direct and indirect implications of the bilateral trade relationship between Mexico and the United States on both nations’ production, employment, and income distribution. The findings suggest that bilateral trade under the North American Free Trade Agreement (NAFTA) bolstered production and employment in both countries, with more substantial effects observed in Mexico. However, the author noted that the employment gains in Mexico were somewhat offset by the adverse impact of the increased imports due to trade liberalization and the requirement of foreign inputs for export production. The research also indicates that NAFTA trade had an unequal effect on income distribution in both nations, implying the necessity for policies to mitigate trade-induced inequalities. The study offers valuable insights into the repercussions of bilateral trade under NAFTA, underscoring the importance of considering impacts on income distribution, in addition to production and employment.

In his study, Morales-López [11] examined the trade triangulation between China, Mexico, and other North American nations from a trade in value-added perspective from 2000 to 2014. The primary findings suggest that the Chinese value-added in exports to the US and Canada has increased since China’s accession to the WTO in 2001. The author highlighted that this growth occurred at the cost of a reduction in the US value-added embedded in Mexican exports.

The research on South Korea’s trade utilizing the method of decomposing exports in terms of value-added has been prolific since the pioneering works of Sakong et al. and Choi and Kim [30,31]. Both studies used the first version of the 2009 World Input–Output Tables to analyze South Korean exports from a trade in value-added viewpoint. Choi and Kim [31] also estimated participation and location indices for South Korea in GVCs.

Chung [32] quantified South Korea’s participation in GVCs from 1995 to 2011 and studied the repercussions of such involvement on the Korean economy. He estimated the income and employment engendered by South Korea’s incorporation into global production networks. The results suggest that South Korea substantially internationalized its productive processes, widening the gap between gross exports and the South Korean value-added included in them. Conversely, Kiyota [33] explored the effects of exports on employment in China, Indonesia, Japan, and South Korea from 1995 to 2009. One key finding was that even though over 80% of exports in the four countries were related to manufacturing, a significant portion of non-manufacturing workers depended on manufacturing firms’ exports through vertical inter-industry linkages.

Zhang [34] conducted an analysis of the bilateral trade relationship between China and South Korea. He highlighted a shift in Chinese exports to South Korea from primary goods to manufactured goods, sparking a growth in intra-industry trade of both inputs and final manufactured goods. In light of this, the author underlined that product quality and diversification are becoming increasingly critical facets of this bilateral relationship. Furthermore, Chen [35] scrutinized the role of services in the Global Value Chains (GVCs) involving Taiwan and South Korea. He emphasized that the tertiary sector is progressively contributing more value-added to the exports of both nations, especially with respect to electrical, electronic, and optical products destined for China.

Sone [36] delved into the position of South Korea within the global automotive industry’s value chain. The study revealed that primary export destinations for South Korea included the United States, Russia, China, and Canada. The value-added contribution of the South Korean automotive sector to South Korean naval transportation equipment exports is considerably high compared to other economic sectors. The author also highlighted that most automotive exports from South Korea to the United States are final goods, whereas trade with China is predominantly in intermediate goods.

The sole study that has analyzed the trade of Mexico and South Korea collectively from a value-added generation perspective was conducted by Fujii-Gambero and Betancourt-Gómez [37]. They explored the differences in the quality of manufacturing exports of Mexico and South Korea to the world. Among their key findings, they emphasized that South Korea’s manufacturing exports contain more domestic value-added, exhibit better integration into global production chains of parts and components, exhibit a higher degree of linkages with the domestic economy, and are produced by companies with higher productivity levels that generate higher-wage jobs. The difference between our research and their work lies in the focus; while Fujii-Gambero and Betancourt-Gómez [37] investigate the exports of both countries to any destination, our research concentrates on the bilateral trade relationship between the two countries.

5. Results

Figure 2 presents a detailed breakdown of bilateral gross exports, classified according to the origin of the value-added and the type of trade. Looking at Mexican exports to South Korea, there has been a significant increase in the proportion of Mexican value-added tied to Global Value Chains (GVCs) in total exports. The share of this component rose from 25.6% in 2007 to 34.3% in 2021. Similarly, the foreign value-added also rose from 24.2% to 32.7% within the same period. These increases coincided with a decline in Mexican value-added linked to traditional exports.

Concerning South Korean exports to Mexico, the South Korean value-added tied to GVCs, seen as a share of total exports, increased from 31.7% in 2007 to 37.4% in 2021. Contrarily, the foreign value-added showed a slight decline of 1.7% between 2007 and 2021, which is the opposite trend to what was observed in the export flow from Mexico to Korea. Similar to the Mexico–Korea export flow, the increase in South Korean value-added connected to GVCs took place alongside a decrease in Korean value-added tied to traditional exports.

Evaluating the evolution of value-added components in the gross trade flows between countries shows an increasing involvement of the bilateral relationship in GVC dynamics. However, due to the geographical distance between Mexico and South Korea, double counting is limited as it is difficult for the value-added generated by the bilateral relationship to transit between the two countries more than once.

Importantly, it should be noted that exports between Mexico and South Korea generate similar proportions of Mexican and Korean value-added. The Mexican value-added contained in exports to South Korea accounted for 66.9% of gross exports to this destination in 2021, while the Korean value-added embedded in exports to Mexico reached a proportion of 71.5% during the same year. These trends have remained relatively steady between 2017 and 2021, suggesting that the reconfiguration of GVCs has not had a substantial impact on the trading pattern of the bilateral relationship.

While both countries generate a similar proportion of domestic value-added from the bilateral relationship, the size of South Korean value-added is considerably larger than that of Mexico.

Table 5. Domestic value-added generated by bilateral exports by exporting categories and country of origin share. 2000–2021 (percentages).

Category and Sector	2000		2007–2010		2011–2016		2017–2021
	MEX	KOR	MEX	KOR	MEX	KOR	MEX	KOR
Primary Sector	50.8	49.2	76.1	23.9	92.4	7.6	96.8	3.2
Agriculture, hunting, forestry, and fishing	29.7	70.3	27.5	72.5	25.5	74.5	39.6	60.4
Mining and quarrying	71.6	28.4	89.4	10.6	98.2	1.8	99.2	0.8
Manufactures based on natural resources	6.9	93.1	10.6	89.4	13.2	86.8	12.9	87.1
Food, beverages, and tobacco	56.0	44.0	56.3	43.7	53.2	46.8	62.3	37.7
Coke, refined petroleum, and nuclear fuel	4.0	96.0	3.6	96.4	24.8	75.2	49.3	50.7
Chemicals and chemical products	6.2	93.8	4.3	95.7	6.1	93.9	7.4	92.6
Basic and fabricated metals	9.7	90.3	13.4	86.6	11.0	89.0	10.9	89.1
Other manufactures based on natural resources	3.5	96.5	8.4	91.6	16.6	83.4	10.9	89.1
Manufactures based on technology	3.0	97.0	2.2	97.8	4.0	96.0	8.0	92.0
Machinery and equipment	2.3	97.7	6.0	94.0	8.8	91.2	3.7	96.3
Electronic, electrical, and optical equipment	2.6	97.4	1.7	98.3	2.7	97.3	5.2	94.8
Transport equipment	10.4	89.6	2.9	97.1	6.1	93.9	24.4	75.6
Other activities	9.8	90.2	7.9	92.1	12.2	87.8	26.1	73.9
Renting of M&Eq and other business activities	13.5	86.5	11.9	88.1	15.9	84.1	28.1	71.9
Other	8.1	91.9	6.8	93.2	10.3	89.7	25.1	74.9
Total	7.7	92.3	8.1	91.9	16.8	83.2	25.4	74.6

Source: own elaboration with data from ADB (2023). Note: values from the periods 2007–2010, 2011–2016, and 2017–2021 are annual weighted averages.

illustrates the share of both countries in the total domestic value-added generated by the bilateral relationship—Mexican and South Korean.

Throughout 2007–2021, for every USD 100 of value-added generated in both countries through the bilateral relationship, USD 25 corresponded to Mexico and USD 75 to South Korea. However, the share of Mexican value-added increased during the period analyzed, as it only reached 7.7% in 2000.

The proportion of Mexican and South Korean shares in domestic value-added generated by bilateral trade varies according to the exporting category and sector. For instance, in mining, for every USD 100 of Mexican and South Korean value-added contained in bilateral exports of the sector, USD 99.2 were generated in Mexico during 2017–2021. Conversely, the situation is reversed in sectors such as chemical and chemical products, machinery and equipment, and electrical, electronic, and optical equipment, where the share of South Korean value-added exceeds 90% (see Table 5).

The sectoral analysis confirms a rising trend in the share of Mexican value-added. This upward trend is observed in all export categories and sectors. The automotive industry case is particularly noteworthy, as the evolution of Mexican value-added participation in the domestic value-added embedded in bilateral automotive exports seems to bring more benefits to Mexico compared to other technology-based manufacturing sectors. This can be closely linked to Mexico’s robust automotive parts industry.

Despite the progress made in achieving an equitable income distribution generated by the bilateral relationship between Mexico and South Korea, the data reveal a significant persisting gap. This inequality is a critical factor to consider during Free Trade Agreement negotiations between the two nations.

Another valuable metric for evaluating the benefits accrued by both countries is to compare the value-added related to exports generated within each sector to the total value-added per sector.

Table 6. Domestic value-added generated by bilateral exports as a share of total value-added by the origin of value-added categories and exporting country. 2000-2021 (percentages).

Category and Sector	2000		2007–2010		2011–2016		2017–2021
	MEX	KOR	MEX	KOR	MEX	KOR	MEX	KOR
Primary Sector	0.06	0.15	0.17	0.22	0.79	0.24	2.16	0.20
Agriculture, hunting, forestry, and fishing	0.05	0.11	0.05	0.16	0.05	0.20	0.08	0.16
Mining and quarrying	0.07	0.69	0.23	1.01	1.14	0.72	3.99	0.81
Manufactures based on natural resources	0.08	1.12	0.15	1.10	0.23	1.06	0.35	1.25
Food, beverages, and tobacco	0.03	0.08	0.06	0.16	0.07	0.21	0.12	0.16
Coke, refined petroleum, and nuclear fuel	0.04	0.47	0.05	0.75	0.39	0.53	0.70	0.43
Chemicals and chemical products	0.11	1.31	0.09	1.24	0.18	1.08	0.55	1.53
Basic and fabricated metals	0.28	1.36	0.66	1.53	0.62	1.56	0.81	2.00
Other manufactures based on natural resources	0.04	1.30	0.10	0.94	0.26	0.94	0.30	0.94
Manufactures based on technology	0.07	1.36	0.16	2.43	0.23	1.79	0.60	2.21
Machinery and equipment	0.04	0.67	0.23	1.16	0.40	1.23	0.49	2.28
Electronic, electrical, and optical equipment	0.12	2.10	0.30	3.76	0.39	2.37	0.78	2.46
Transport equipment	0.03	0.25	0.04	0.74	0.11	1.06	0.52	1.41
Other activities	0.03	0.30	0.03	0.37	0.06	0.42	0.15	0.31
Renting of M&Eq and other business activities	0.04	0.91	0.04	0.69	0.11	1.13	0.23	0.62
Other	0.02	0.23	0.03	0.32	0.05	0.33	0.12	0.25
Total	0.04	0.57	0.07	0.79	0.17	0.74	0.37	0.75

Source: own elaboration with data from ADB (2023). Note: values from the periods 2007–2010, 2011–2016, and 2017–2021 are annual weighted averages.

shows the significance of bilateral exports in total value-added generation across categories and sectors for both countries. For instance, the results indicate that for every USD 100 of value-added produced by the Mexican metallurgical industry, USD 0.81 were related to the production of exports to South Korea in 2017–2021.

Between 2000 and 2021, the Mexican value-added generated by exports to South Korea and the South Korean value-added generated by exports to Mexico grew in most sectors as a share of the total sectoral value-added (see Table 6). In general, the share of Mexican and South Korean value-added generated by bilateral exports in sectoral value-added is low. However, certain sectors see considerable participation. Except for mining and petroleum refined products, the South Korean value-added generated by exports to Mexico carries more weight for South Korean sectors than the Mexican value-added generated by exports to South Korea for Mexican sectors.

The significance of South Korean exports to Mexico in the value-added generated by South Korea’s technology-based manufacturing sector stands out. In 2017–2021, for every USD 100 of value-added produced by South Korea’s electronic, electrical, and optical product sector, USD 2.46 were associated with exports to Mexico. Similar patterns are observed in the machinery and equipment sector (USD 2.28) and the transportation equipment sector (USD 1.41). Given the distance between the two countries, Mexico’s importance as an export destination for South Korea’s production is substantial.

Mining and petroleum derivatives are the only sectors where the significance of bilateral exports for generating sectoral value-added is higher in Mexico than in South Korea. However, despite the crises that have occurred and the ongoing process of reconfiguring GVCs, the relevance of South Korea for generating Mexican sectoral value-added has risen across all sectors. If this trend continues, diversifying Mexico’s export basket towards South Korea could potentially leverage bilateral trade to generate more value-added for the overall economy.

Table 7. Mexican value-added generated by exports to South Korea, by origin of value-added categories. 2000–2021 (millions of dollars and percentages).

Category and Sector	2000		2007–2010		2011–2016		2017–2021
	$	%	$	%	$	%	$	%
Primary Sector	37.4	14.8	764.2	27.8	5494.5	48.5	9827.7	48.0
Agriculture, hunting, forestry, and fishing	10.8	4.3	59.3	2.2	119.7	1.1	161.4	0.8
Mining and quarrying	26.6	10.5	704.9	25.6	5374.9	47.4	9666.3	47.2
Manufactures based on natural resources	73.1	28.9	829.2	30.2	1987.3	17.5	2280.6	11.1
Food, beverages, and tobacco	10.4	4.1	120.8	4.4	250.4	2.2	331.5	1.6
Coke, refined petroleum, and nuclear fuel	1.3	0.5	15.2	0.6	181.6	1.6	301.1	1.5
Chemicals and chemical products	17.2	6.8	86.0	3.1	223.9	2.0	325.5	1.6
Basic and fabricated metals	29.7	11.7	455.5	16.6	695.6	6.1	815.5	4.0
Other manufactures based on natural resources	14.5	5.7	151.7	5.5	635.8	5.6	506.9	2.5
Manufactures based on technology	30.9	12.2	321.1	11.7	902.8	8.0	2381.6	11.6
Machinery and equipment	1.9	0.8	70.1	2.5	234.1	2.1	203.0	1.0
Electronic, electrical, and optical equipment	23.2	9.2	210.4	7.7	422.0	3.7	1008.4	4.9
Transport equipment	5.8	2.3	40.6	1.5	246.7	2.2	1170.1	5.7
Other activities	111.8	44.2	835.4	30.4	2949.3	26.0	5986.5	29.2
Renting of M&Eq and other business activities	49.3	19.5	286.4	10.4	1299.5	11.5	2125.4	10.4
Other	62.5	24.7	549.0	20.0	1649.8	14.6	3861.1	18.9
Total	253.2	100.0	2750.0	100.0	11,333.9	100.0	20,476.5	100.0

Source: own elaboration with data from ADB (2023). Note: values from the periods 2007–2010, 2011–2016, and 2017–2021 are annual weighted averages.

provides a breakdown of the Mexican value-added embedded in Mexico’s exports to South Korea according to the originating sector and category. In absolute terms, the Mexican value-added resulting from exports to South Korea has grown across all sectors from 2000 to 2021. However, this growth has been uneven among sectors, leading to a substantial shift in value-added composition. While the mining sector has seen a significant boost, there have been notable decreases in resource-based manufacturing and services contributions. This trend has persisted even during periods of economic crises and GVC restructuring.

During 2017–2021, the mining sector accounted for nearly half (47.2%) of the Mexican value-added embedded in exports to South Korea. Other activities represented 29.2%, while manufacturing contributed 22.7%. The remarkable growth of Mexican mining exports to South Korea is closely linked to South Korea’s role in global value chains (GVCs) within the mining sector, where it primarily processes imported minerals from various countries.

Adopting the trade in value-added perspective allows us to observe that the significance of technology-based manufacturing exports is lower than what gross trade flows suggest. In 2017–2021, these sectors accounted for 31% of gross exports (see Table 2), but they only generated 11.6% of the Mexican value-added contained in exports to South Korea (see Table 7). In contrast, other activities, including services, represented 3.7% of gross exports to South Korea and 29.2% of the Mexican value-added generated by exports to South Korea (see Table 2 and Table 7).

Table 8. South Korean value-added generated by exports to Mexico, by origin of value-added categories. 2000–2021 (millions of dollars and percentages).

Category and Sector	2000		2007–2010		2011–2016		2017–2021
	$	%	$	%	$	%	$	%
Primary Sector	36.2	1.2	239.8	0.8	448.9	0.8	326.8	0.5
Agriculture, hunting, forestry, and fishing	25.6	0.8	156.3	0.5	349.1	0.6	246.7	0.4
Mining and quarrying	10.6	0.3	83.5	0.3	99.9	0.2	80.1	0.1
Manufactures based on natural resources	984.0	32.4	7021.8	22.4	13,029.4	23.2	15,393.0	25.6
Food, beverages, and tobacco	8.2	0.3	93.8	0.3	220.6	0.4	201.0	0.3
Coke, refined petroleum, and nuclear fuel	30.0	1.0	412.6	1.3	550.8	1.0	310.3	0.5
Chemicals and chemical products	261.0	8.6	1908.3	6.1	3418.0	6.1	4079.8	6.8
Basic and fabricated metals	278.1	9.1	2942.8	9.4	5656.1	10.1	6652.1	11.1
Other manufactures based on natural resources	406.7	13.4	1664.3	5.3	3183.9	5.7	4149.9	6.9
Manufactures based on technology	992.5	32.6	14,412.1	45.9	21,469.7	38.3	27,350.2	45.6
Machinery and equipment	82.6	2.7	1096.4	3.5	2413.5	4.3	5255.1	8.8
Electronic, electrical, and optical equipment	860.2	28.3	11,969.0	38.1	15,267.7	27.2	18,470.5	30.8
Transport equipment	49.7	1.6	1346.7	4.3	3788.6	6.8	3624.6	6.0
Other activities	1,028.8	33.8	9708.3	30.9	21,167.7	37.7	16,963.7	28.3
Renting of M&Eq and other business activities	316.1	10.4	2126.2	6.8	6874.3	12.3	5442.5	9.1
Other	712.7	23.4	7582.1	24.2	14,293.4	25.5	11,521.1	19.2
Total	3041.5	100.0	31,382.1	100.0	56,115.8	100.0	60,033.7	100.0

Source: own elaboration with data from ADB (2023). Note: values from the periods 2007–2010, 2011–2016, and 2017–2021 are annual weighted averages.

provides a breakdown of the South Korean value-added embedded in South Korea’s exports to Mexico according to the originating sector and category. The quantity of South Korean value-added has grown across all sectors between 2000 and 2021. However, similar to the trade flow between Mexico and South Korea, the composition has changed significantly. Technology-based manufacturing has increased from constituting 32.6% of South Korean value-added related to exports to Mexico in 2000 to 45.6% in 2017–2021. This growth has come at the expense of reductions in the share of natural resources-based manufacturing (from 32.4% to 25.6%) and other activities (from 33.8% to 28.3%).

In total, during 2017–2021, manufacturing accounted for 71.2% of South Korean value-added associated with exports to Mexico, with the electronics, electrical, and optical products sector contributing 30.8%. Other activities, particularly from the services sector, contributed 28.3%.

When comparing the structure of the gross export basket to Mexico with the South Korean value-added related to exports to Mexico, the change in technology-based manufacturing and other activities is notable. In 2017–2021, the technology-based manufacturing sector contributed 67.8% to gross exports and 45.6% to value-added. On the other hand, other activities, predominantly in the services sector, represented 5.8% of gross exports and 28.3% of value-added. This divergence highlights the significant contribution that the service sector and other non-manufacturing activities make to the value-added in exports, even when these activities do not appear prominently in gross export figures.

The trade in value-added perspective allows for a nuanced analysis of intra-industry trade patterns between the two countries within the technology-based manufacturing sector. This sector constitutes 31% of Mexico’s gross exports to South Korea and 67.8% of South Korea’s gross exports to Mexico. However, when viewed in terms of value-added, the sector accounts for only 11.6% of the trade flow from Mexico to South Korea and 45.6% from South Korea to Mexico. These findings demonstrate that technology-based products exported by South Korea incorporate a larger proportion of South Korean value-added generated within the same sector. On the contrary, those exported by Mexico tend to incorporate more Mexican value-added generated in other sectors, particularly services.

The trends of Mexican and South Korean value-added generated by bilateral exports shown in Table 7 and Table 8 have remained consistent in the context of the reconfiguration of global value chains (GVCs). Figure 3 and Figure 4 break down the Mexican and South Korean value-added embedded in the bilateral exports according to the country of final consumption. This perspective is important because the international fragmentation of production has caused third countries to play a role in a bilateral trade relationship (the disaggregated data by export category can be found in the attached

Table A2. Mexican value-added generated by exports to South Korea, by origin of value-added categories and country of final consumption share. 2000–2021 (millions of dollars and percentages).

Category/Country	2000		2007–2010		2011–2016		2017–2021
	$	%	$	%	$	%	$	%
Primary Sector	37.4	100.0	191.1	100.0	915.8	100.0	1965.5	100.0
South Korea	24.9	66.6	96.4	50.4	395.6	43.2	825.2	42.0
Mexico	0.2	0.5	1.3	0.7	5.4	0.6	13.7	0.7
United States	2.9	7.8	13.8	7.2	66.1	7.2	192.8	9.8
China	1.5	4.0	17.8	9.3	101.4	11.1	267.5	13.6
Japan	2.2	5.9	7.9	4.1	49.2	5.4	91.6	4.7
Germany	0.3	0.9	2.2	1.1	8.5	0.9	23.3	1.2
Canada	0.2	0.6	1.3	0.7	5.8	0.6	15.3	0.8
Rest of the World	5.1	13.7	50.4	26.4	283.8	31.0	536.2	27.3
Manufactures based on natural resources	73.1	100.0	207.3	100.0	331.2	100.0	456.1	100.0
South Korea	46.3	63.4	120.6	58.2	195.2	58.9	278.2	61.0
Mexico	0.5	0.6	1.5	0.7	2.0	0.6	3.0	0.7
United States	7.2	9.8	12.2	5.9	19.7	5.9	34.4	7.5
China	2.6	3.6	14.7	7.1	27.4	8.3	41.2	9.0
Japan	3.3	4.5	6.0	2.9	8.6	2.6	10.1	2.2
Germany	0.9	1.3	2.7	1.3	2.8	0.8	4.8	1.1
Canada	0.6	0.8	1.5	0.7	2.3	0.7	3.5	0.8
Rest of the World	11.7	16.0	48.1	23.2	73.3	22.1	80.9	17.7
Manufactures based on technology	30.9	100.0	80.3	100.0	150.5	100.0	476.3	100.0
South Korea	24.1	78.0	54.9	68.4	97.1	64.5	327.3	68.7
Mexico	0.1	0.3	0.5	0.6	0.8	0.5	2.6	0.5
United States	2.1	6.6	3.9	4.8	8.1	5.4	34.3	7.2
China	0.4	1.2	5.0	6.2	11.6	7.7	32.3	6.8
Japan	0.6	1.8	1.3	1.6	2.4	1.6	5.5	1.2
Germany	0.3	1.0	0.9	1.2	1.1	0.8	4.9	1.0
Canada	0.2	0.5	0.4	0.6	1.0	0.6	4.3	0.9
Rest of the World	3.2	10.5	13.3	16.6	28.4	18.9	65.2	13.7
Other activities	111.8	100.0	208.9	100.0	491.6	100.0	1197.3	100.0
South Korea	74.4	66.5	125.2	59.9	286.8	58.4	658.3	55.0
Mexico	0.7	0.6	1.4	0.7	2.7	0.5	7.5	0.6
United States	10.2	9.1	11.8	5.7	28.9	5.9	99.4	8.3
China	3.4	3.0	14.5	6.9	40.7	8.3	122.5	10.2
Japan	4.4	3.9	5.8	2.8	14.1	2.9	36.0	3.0
Germany	1.4	1.3	2.6	1.2	3.9	0.8	13.0	1.1
Canada	0.8	0.7	1.4	0.7	3.0	0.6	9.3	0.8
Rest of the World	16.6	14.8	46.2	22.1	111.3	22.7	251.3	21.0
Total	253.2	100.0	687.5	100.0	1889.0	100.0	4095.3	100.0
South Korea	169.7	67.0	397.0	57.8	974.7	51.6	2089.0	51.0
Mexico	1.4	0.6	4.7	0.7	10.8	0.6	26.8	0.7
United States	22.3	8.8	41.7	6.1	122.8	6.5	360.9	8.8
China	7.9	3.1	52.0	7.6	181.2	9.6	463.4	11.3
Japan	10.4	4.1	21.0	3.1	74.3	3.9	143.2	3.5
Germany	3.0	1.2	8.4	1.2	16.4	0.9	45.9	1.1
Canada	1.8	0.7	4.7	0.7	12.0	0.6	32.4	0.8
Rest of the World	36.6	14.5	158.0	23.0	496.8	26.3	933.6	22.8

Source: own elaboration with data from ADB (2023).

and

Table A3. South Korean value-added generated by exports to Mexico, by origin of value-added categories and country of final consumption. 2000–2021 (millions of dollars and percentages).

Category/Country	2000		2007–2010		2011–2016		2017–2021
	$	%	$	%	$	%	$	%
Primary Sector	36.2	100.0	60.0	100.0	74.8	100.0	65.4	100.0
Mexico	21.8	60.4	35.0	58.4	43.3	57.8	36.1	55.2
South Korea	0.0	0.1	0.1	0.2	0.1	0.2	0.2	0.4
United States	12.2	33.8	18.3	30.5	22.7	30.3	20.5	31.4
China	0.1	0.2	0.4	0.7	0.7	1.0	1.2	1.8
Japan	0.2	0.4	0.3	0.5	0.4	0.5	0.4	0.6
Germany	0.1	0.4	0.5	0.8	0.5	0.6	0.6	1.0
Canada	0.5	1.4	1.8	2.9	2.0	2.7	1.7	2.6
Rest of the World	1.2	3.4	3.6	6.1	5.1	6.9	4.6	7.0
Manufactures based on natural resources	984.0	100.0	1755.5	100.0	2171.6	100.0	3,078.6	100.0
Mexico	593.5	60.3	992.5	56.5	1160.8	53.5	1566.3	50.9
South Korea	1.0	0.1	3.0	0.2	4.7	0.2	13.0	0.4
United States	328.6	33.4	555.2	31.6	720.7	33.2	1057.1	34.3
China	1.7	0.2	13.1	0.7	24.2	1.1	61.4	2.0
Japan	4.5	0.5	8.7	0.5	11.9	0.5	20.6	0.7
Germany	4.1	0.4	15.1	0.9	15.6	0.7	34.2	1.1
Canada	14.4	1.5	51.8	3.0	64.1	2.9	87.4	2.8
Rest of the World	36.3	3.7	115.9	6.6	169.7	7.8	238.6	7.8
Manufactures based on technology	992.5	100.0	3603.0	100.0	3578.3	100.0	5470.0	100.0
Mexico	541.0	54.5	1813.0	50.3	1769.4	49.4	2418.3	44.2
South Korea	1.4	0.1	6.0	0.2	6.8	0.2	24.7	0.5
United States	373.6	37.6	1331.2	36.9	1317.9	36.8	2164.1	39.6
China	2.9	0.3	29.7	0.8	38.8	1.1	136.4	2.5
Japan	5.3	0.5	18.9	0.5	19.9	0.6	45.9	0.8
Germany	4.8	0.5	29.6	0.8	26.9	0.8	70.7	1.3
Canada	20.8	2.1	132.1	3.7	126.8	3.5	189.4	3.5
Rest of the World	42.8	4.3	242.4	6.7	271.8	7.6	420.6	7.7
Other activities	1028.8	100.0	2427.1	100.0	3528.0	100.0	3392.7	100.0
Mexico	636.3	61.9	1310.2	54.0	2026.0	57.4	1812.9	53.4
South Korea	1.1	0.1	4.0	0.2	6.3	0.2	12.7	0.4
United States	326.4	31.7	825.3	34.0	1082.7	30.7	1109.5	32.7
China	2.2	0.2	18.8	0.8	34.0	1.0	64.2	1.9
Japan	4.6	0.5	12.2	0.5	17.5	0.5	22.5	0.7
Germany	4.1	0.4	19.4	0.8	22.1	0.6	35.3	1.0
Canada	16.2	1.6	80.2	3.3	99.7	2.8	93.9	2.8
Rest of the World	37.8	3.7	157.1	6.5	239.6	6.8	241.7	7.1
Total	3041.5	100.0	7845.5	100.0	9352.6	100.0	12,006.7	100.0
Mexico	1792.6	58.9	4150.7	52.9	4999.5	53.5	5833.6	48.6
South Korea	3.5	0.1	13.1	0.2	17.9	0.2	50.6	0.4
United States	1040.8	34.2	2730.0	34.8	3144.0	33.6	4351.2	36.2
China	6.9	0.2	62.1	0.8	97.7	1.0	263.1	2.2
Japan	14.5	0.5	40.1	0.5	49.7	0.5	89.4	0.7
Germany	13.2	0.4	64.6	0.8	65.1	0.7	140.8	1.2
Canada	51.8	1.7	265.8	3.4	292.6	3.1	372.5	3.1
Rest of the World	118.1	3.9	519.1	6.6	686.2	7.3	905.5	7.5

Source: own elaboration with data from ADB (2023). Note: values from the periods 2007–2010, 2011–2016, and 2017–2021 are annual weighted averages.

).

In 2007, 63.8% of the Mexican value-added incorporated in exports to South Korea was consumed in that country. However, by 2021, this proportion had decreased to 49.2%. This reduction can be primarily attributed to the increased demand from China for Mexican value-added contained in Mexican exports to South Korea, which rose from 5.3% in 2007 to 11.6% in 2021. The importance of demand from the United States also grew, from 6.1% in 2007 to 9.1% in 2021, as did that of the rest of the world, which increased from 19.6% in 2007 to 24.3% in 2021. These trends align with the expansion of global production fragmentation in recent decades. This is evidenced by the fact that only half of the Mexican value-added associated with exports to South Korea depends on that country’s final demand. These trends also coincide with the period in which China consolidated its role as one of the main players in international trade.

On the other hand, the composition of South Korean value-added contained in exports to Mexico, in terms of the final destination country, remained relatively stable between 2007 and 2021 (see Figure 3). The most significant change was a 6.7% decrease in the share of Mexican final demand, offset by a slight increase in the importance of China’s and the rest of the world’s final demand (both increasing by 2.3%). Although the shares have remained relatively constant, it is important to highlight the pivotal role of final demand from other countries as a driver of South Korean value-added exported to Mexico, with an average share of 34.8% during the period from 2007 to 2021.

Previous literature has highlighted that a substantial portion of the generation of South Korean value-added in exports to Mexico is driven by the final demand of other countries, particularly the United States. Similarly, the findings in this analysis suggest that a significant part of the generation of Mexican value-added in exports to South Korea is also influenced by the final demand of other countries, particularly China and other nations globally. In both scenarios, more than half of the value-added creation in both countries tied to bilateral exports is propelled by the final demand of third countries.

The results indicate a low contribution of final demand from South Korea as a generator of South Korean value-added embedded in exports to Mexico, and vice versa. This can be primarily attributed to the geographical distance, which imposes constraints on the flow of value-added between the two countries. Additionally, the influence of final demand from Japan is moderate, with an even smaller impact from final demand from Canada and Germany on the generation of Mexican and South Korean value-added linked to bilateral exports. Overall, China and the United States are the third countries with the most significant influence on the bilateral relationship through their final demand.

6. Final Thoughts

The perspective of trade in value-added used in this research allows us to unravel the main characteristics of the bilateral trade relationship between Mexico and South Korea. Firstly, it allows us to assess the significance of GVCs in shaping bilateral exports. From 2007 to 2021, GVC operations in bilateral trade increased, resulting in a rise in Mexican value-added associated with GVCs and foreign value-added in the export flow between Mexico and South Korea. However, in the export flow between South Korea and Mexico, only South Korean value-added linked to GVCs experienced an increase.

Secondly, the methodology employed enables us to analyze the distribution of domestic income generated by the bilateral relationship between Mexico and South Korea. While a significant portion of domestic value-added is produced in South Korea, the gap has gradually narrowed over time. In 2000, Mexico generated 7.7% of domestic value-added, but by 2017–2021, this figure rose to 25.4%. This trend can be attributed to the increased generation of Mexican value-added in the mining sector and, to a lesser extent, the automotive sector.

Thirdly, it allows us to evaluate the contribution of bilateral exports to value-added generation within the Mexican and South Korean sectors. Bilateral exports have generated more value-added in South Korea than in Mexico, although their importance in value-added generation within both countries has been relatively low. However, between 2000 and 2021, the significance of exports for sectoral value-added generation increased in both countries. Notably, South Korean exports to Mexico have played a substantial role in value-added generation within South Korean technology-based manufacturing, particularly in machinery and equipment sectors, as well as electronic, electrical, and optical products. A similar trend is observed in Mexico’s mining sector, where value-added generation increasingly relies on exports to South Korea.

Fourthly, it enables us to break down the Mexican and South Korean value-added generated by the bilateral relationship by sector of origin. The majority of Mexican value-added embedded in exports to South Korea is produced by the mining sector and other activities, notably services. On the other hand, South Korean value-added linked to exports to Mexico is primarily generated in electronic, electrical, and optical products, as well as basic metals and metal products. The results also reveal that South Korea’s technology-based exports to Mexico incorporate more value-added generated in technology-based manufacturing than Mexico’s technology-based exports to South Korea.

Fifthly, it allows us to assess the importance of third-country demand in driving Mexican and South Korean value-added embedded in bilateral exports. Previous literature suggests that a significant portion of South Korean value-added reaching Mexico is ultimately consumed in the United States. However, this research demonstrates that the reverse flow exhibits a similar pattern. In 2017–2021, approximately half of the Mexican and South Korean value-added in bilateral exports was consumed in a third country. The access of South Korean value-added to the US market through Mexico, and the access of Mexican value-added to the Chinese market and the rest of the world, have been crucial factors in explaining the expansion of the bilateral relationship.

The results illustrate an intensifying bilateral relationship over time, with South Korea holding a more advantageous position by generating a larger share of the value-added linked to the bilateral relationship, particularly in technology-based sectors. In contrast, Mexico incorporates more value-added from the mining sector. It is important to note that the disparity in the distribution of domestic value-added linked to bilateral trade between the two countries has primarily diminished due to Mexico’s surge in mining exports to South Korea.

These trends observed in this study’s findings persist even amidst the reconfiguration of GVCs, indicating that a free trade agreement between Mexico and South Korea has the potential to further enhance value-added generation. An agreement could enable the balancing of tariffs, facilitate access to innovation, and foster stronger industrial complementarity [38], leading to the diversification of Mexican exports to South Korea, the generation of higher value-added by Mexico and, ultimately, the attainment of a more equitable bilateral relationship.