Globalization of trade flows -- what you see is not what you get --

2 nd WPTGS meeting, OECD Paris, 16.-18.11.2009

[email protected]

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Provisional Outline



Global economic crisis - decomposition of trade flows (wysinwyg)



Trade and Production: Import content of exports -- statistical measurement

  Economic importance Statistical measurement  Case studies --Trade & Business Links  Direct measurement  Indirect measurement 

Trade:



Goods for processing

 Economic importance   Statistical measurement in BPM6/IMTS2010

Intra-firm trade

 Economic importance  Statistical measurement in SNA 2008/BPM6/IMTS2010 2



Global economic crisis

Growth rates of merchandise trade by region, Q1 2009

0.0

-5.0

-10.0

-15.0

-20.0

-25.0

-30.0

-35.0

-40.0

-45.0

-50.0

Quarterly percentage change in world merchandise exports by region

World North America South and Central America Europ e Asia Others 2008Q4 2009Q1

... but second quarter world exports increased 8% (q/q)

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Import content of exports – trade in value added

Three ways of measuring the fragmentation of the value chain

1 Using firm surveys 2 Foreign trade statistics  The increase in the share of parts and components in trade flows indicates more production-sharing between countries.

3 Using international input-output tables to depict inter-industry relations.  I-O shows how the output of one industry is an input to each other industry. Input is enumerated in the column of an industry and its outputs are enumerated in its corresponding row.  International I-O extends the inter-sectoral relations to several countries. It shows how dependent each national industry is on all other sectors from the domestic economy and from other partner countries, both as customer of their outputs and as supplier of their inputs.  International I-O is conceptually very simple, but requires high-quality data. It is a powerful modeling tool for:  Measuring size/magnitude of production linkages and the “length” of the chains  Computing Vertical Specialization Index  Tracking the international transmission of demand/supply shocks 5

The “American car”*

only 37 per cent of the production value is generated in the US

•30 per cent go to Korea for assembly •17.5 per cent to Japan for components and advanced technology •7.5 per cent to Germany for design •4 per cent to Chinese Taipei and Singapore for minor parts •2.5 per cent to the UK for advertising... •1.5 per cent to Ireland and Barbados for data processing...

... and that was in 1998

Firm surveys Trade and business links ?

* Grossmann, G. Rossi-Hansberg, E. The Rise of Offshoring, It’s not wine for cloths anymore 6

Trade in intermediate goods, 2008

Share of intermediate goods in non-fuel merchandise trade, 2008

Taipei, Chinese Malaysia Indonesia Germany Czech Rep.

Costa Rica China, Hong Kong China World 0% 10% 20% 30% 40% 50% 60% 70% 80% Import Export 7

Trade in services – offshoring/tasks

• Estimating the size of offshore outsourcing is subject to definitional and statistical challenges • Classifications do not distinguish services to end-use clients or intermediate, or business-to business services.

Consequently, estimates vary - 2005: OECD's and UNCTAD include all IT-enabled services, estimate at US$836 billion.

[1] - 2007/8 UNCTAD estimated the value of trade in "IT-enabled" services at US$1.1 trillion in 2005, ...

[2] - London School of Economics business process services (BPO) to exceed US$55 billion in 2008, 20 per cent increasing annually over next five years. [3] estimates global market of offshore outsourcing of IT (ITO) and - Leading recipients of IT and business process off-shored trade have been Brazil, Russia, India, and China. India’s exports US$40 billion, China, Russia, and Brazil US$5 billion, US$3.65 billion, and US$800 million respectively in 2008. ------------------------------------------------------------ [1] OECD, "Expanding International Supply Chains: The Role of Emerging Economies In Providing IT [3] and Business Process Services", Working Paper No. 52, May 2007.

[2] UNCTAD, Information Economy Report 2007-2008. UNCTAD.

Willcocks, Griffiths, and Kotlarsky, Beyond BRIC: Offshoring in non-BRIC countries: Egypt – a new growth market, LSE Outsourcing Unit, January 2009.

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Using Input-Output tables to measure vertical trade Asian Input-Output tables (IDE-Jetro) Leontief inverse = (I-A)

-1

Vertical trade (import content of exports) = M * (I-A)

-1

* X

A: technical coefficients matrix I: identity matrix X: export vector M: vector of shares of import per sector in sector output 9

An alternative measure of bilateral US trade deficit with China US-China trade balance

(Million dollars and percentage)

Exports to China (traditional statistics) USA's share of domestic content in exports (%) Exports to China (adjusted) USA imports from China (traditional statistics) China's share of domestic content in exports (%) USA imports from China (adjusted)

Trade balance (traditional statistics ) Trade balance (adjusted) Ratio trade balance (adjusted / traditional) (%)

* Excluding construction.

2000 2008 *

16252 84 13652 71456 81 57880 107615 356305 76 73 81787 260102 -91362 -284848 -68135 -202223 75 71 10

Goods for Processing

The importance of goods for inward processing in developing economies total exports and imports (minimum approximation), 2000-2008 (Balance of payments data, in billion dollars) Exports, BOP basis

6000 5000 4000 3000 2000 1000 0 2000 01 02 03 04 05 06 07 2008

Imports, BOP basis

6000 5000 4000 3000 2000 1000 0 2000 01 02 03 04 05 06 07 2008 Goods resulting from inward processing Other goods Goods for inward processing Other goods

Source: IMF Balance of Payment statistics partially completed with WTO estimates for missing data.

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Goods for Processing

China's trade by customs regime and type of enterprise, Jan-Jul 2009/08

(Billion US dollars)

Value

JJ2009 Exports Imports JJ2008 Exports 1 Ordinary 2 Processing&Assembling 3 Procesing&Assembling with imported material 627 49 252 520 39 123 803 64 320 of which FOE 4 Processing&Assembling 5 Procesing&Assembling with imported material

Shares

(2+3)/1 (4+5)/1 21 172 0.48

0.31

20 88 0.31

0.21

27 216 0.48

0.30

(3/1) (5/1) (4/2) (5/3) (4+5)/(2+3)

Growth JJ09/08

Ordinary Processing&Assembling Procesing&Assembling with imported material of which FOE Processing&Assembling Procesing&Assembling with imported material 0.40

0.27

0.43

0.68

0.64

-22 -23 -21 -23 -21 0.24

0.17

0.50

0.72

0.67

-23 -29 -27 -31 -27 0.40

0.27

0.43

0.68

0.64

Imports 679 55 169 28 121 0.33

0.22

0.25

0.18

0.52

0.71

0.67

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Goods for Processing A fictive example, China 2007

US$ billions, 2007 Exports of goods Imports of goods Goods trade balance Exports of services Imports of services Services balance Balance on goods and services Current account balance

BPM5

Adjustment 1220 905 315 122 130 -8 307 -618 -352 -266 266 266 372

Source: IMF, BOPCOM,-08/11

BPM6

602 553 49 388 130 258 307 372 13

Example

Manufacturing services that change the condition of the goods Resident Economy A

10 (for acquiring raw oil from B) 3 15 (for refining oil by C) 1 Raw oil (acquired by A previously) Owner: A 2

Resident Economy C

5 30 (for refined oil by C on behalf of A)

Resident Economy B

4 Refined oil, delivered by C on behalf of A), owner: A

Resident Economy D Goods & Services Account: Economy A

• General merchandise (with B): 10 DR • General merchandise (with D): 30 CR •

Manufacturing services on physical inputs owned by others (with C): 15 DR Goods Account: Economy B

• Goods exports to A (10 CR) Money flow Goods flow

Services Account: Economy C

14 • Manufacturing services (15 CR)

Goods for Processing

 The application of the new BPM6 recommendations can lead to significant divergences in trade aggregates  Fear: the BOP treatment may lead to a loss of data in merchandise as principal data source  Alter statistical description of an economy’s economic structure: shift between goods and services, structure of industries/output ratios/ productivity measures  Data collection: revision of questionnaires, register links, need for sound compilation guideline  Warn users against break in series, consistency of time series (ratios, shares and rankings change)  for users: will link between int’l. trade and production be less ambiguous? Where is the limit between goods for processing and manufacturing?

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Intra-firm trade

Anecdotal evidence:

• One-third of all [merchandise] trade is within companies • for the US in 2006, 37 to 38 per cent of its trade in

merchandise is intra-firm (Akram/Khan/Holady study)

• and 28 per cent of its trade in services is intra-firm (2007)

Intra-firm share in US total private services, 1997-2007

700000 600000 500000 400000

Value

300000 200000 100000 0 1997 1999 2001

Years

2003 2005 2007 total private services intra-firm 16

Intra-firm trade

•

2008 SNA

 In principle, items transferring across borders should be valued at “arm’s length” prices •

BPM6

 (10.150) Services for the general management of a branch/subsidiary/associate...included in other business services •

IMTS 2010 (draft):

 ...transactions between related parties (whatever the definition of “related") should be included in international merchandise trade statistics the same way as if these transactions would take place between unrelated parties...

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Conclusions



IMTS 2010 – mode of transport, country of consignment, imports (fob), goods for processing, intra-firm trade



MSITS 2010 – other business services, mfr services on inputs owned by others



More research needed into trade in value added



Intermediate goods



I/O approach



New data sources: trade and business links

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