Transcript Handbook on Economic Globalisation Indicators Thomas Hatzichronoglou CHAPTER 1. THE CONCEPT OF ECONOMIC GLOBALISATION AND ITS MEASUREMENT CHAPTER 2.

Handbook on Economic Globalisation
Indicators
Thomas Hatzichronoglou
1
CHAPTER 1. THE CONCEPT OF ECONOMIC GLOBALISATION AND
ITS MEASUREMENT
CHAPTER 2. FOREIGN DIRECT INVESTMENT
CHAPTER 3. THE ECONOMIC ACTIVITY OF MULTINATIONALS
CHAPTER 4. THE INTERNATIONALISATION OF TECHNOLOGY
CHAPTER 5. ASPECTS OF TRADE GLOBALISATION
2
DRIVING FORCES CONTRIBUTED TO THE
GLOBALISATION PROCESS
1. Liberalisation of capital movements
2. Further opening of markets to trade and
investment
3. Development of information and
communication technologies
3
Important features of globalisation
General aspects

Reduction of barriers to trade

The high integration of financial markets is increasingly
impacting on the conduct of industrial restructuring

Foreign direct investment is becoming a crucial factor in the
globalisation process

Multinational firms constitute one of the main vectors of
economic internationalisation

Fragmentation of production at the international level

New forms of international competition

Compression of time and distance in international transactions

Multiplication of regional free-trade agreements
4
Important features of globalisation (continued)
Microeconomic aspects

Global strategies adopted by firms

Global conception of markets

Multi-regional integration strategy

Changes in external organisation of multinational firms
•
•
•
•

multiplication of mergers and acquisitions
of strategic alliances
of offshoring and international subcontracting
worldwide network structure
Changes in internal organisation
• Outsourcing
• Just-in-time flows
• Individualisation of tasks and pay
• Need for greater transparency
• Corporate governance regulations
5
Trends in international trade and investment components
OECD, 1990 = 100, at current prices
700
700
Portfolio investment3
600
600
500
500
400
400
Other investment
Direct
investment
300
300
Trade in
goods
200
200
100
Investment income
0
Trade in services
100
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
6
Main components of the current
account as a percentage of GDP,
OECD
Gross basis, average 1999-2003
%
22
Main components of the financial
account as a percentage of GDP,
OECD
Gross basis, average 1999-2003
%
22
20
20
18
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
Trade in goods
and services
Trade in
goods
Trade in
services
Investment
income
Portfolio
investment
Other investment
Direct investment
7
FDI outflows from OECD countries as a
percentage of GDP
Average 2000-2003
Netherlands
Belgium
Finland
Switzerland
Sweden
France
Denmark
United Kingdom
Spain
Sweden
Switzerland
Spain
New Zealand
Ireland
Canada
Austria
United Kingdom
Norway
Germany
Australia
Portugal
Germany
France
United States
Poland
Italy
Mexico
Austria
Australia
Japan
Iceland
Korea
Norway
Mexico
Slovak Republic
Poland
%
Denmark
Iceland
Czech Republic
0
Czech Republic
Portugal
Turkey
5
Belgium
Finland
Greece
10
Slovak Republic
Hungary
Hungary
15
Ireland
Netherlands
Canada
New Zealand
20
FDI inflows to OECD countries as a
percentage of GDP
Average 2000-2003
United States
Italy
Korea
Turkey
Greece
8
Japan
0
5
10
15
20
%
Outward FDI position of OECD countries
as a percentage of GDP
2005
Switzerland
Netherlands
Belgium
Iceland
Sweden
United Kingdom
Denmark (2004)
Ireland (2003)
France
Finland
Australia
United States
Italy
New Zealand
Japan
Hungary
Greece
Korea (2003)
Czech Republic
%
20
0
New Zealand
Switzerland
Denmark (2004)
United Kingdom
Poland (2004)
Spain
Canada (2003)
Australia
France
Mexico (2004)
Finland
Germany (2004)
Iceland
Norway (2003)
Austria
United States
Italy
Korea (2003)
Turkey (2004)
Turkey (2004)
Poland (2004)
40
Sweden
Czech Republic
Mexico (2004)
Slovak Republic (2004)
60
Hungary
Norway (2003)
Austria
80
Netherlands
Portugal
Portugal
100
Belgium
Slovak Republic
Germany (2004)
120
Ireland (2003)
Canada (2003)
Spain
140
Inward FDI position of OECD countries
as a percentage of GDP
2005
Greece
Japan
9
0
20
40
60
80
100
120
140
%
Outward cross-border
mergers and acquisitions by
G7 countries, 1995-2004
400
Inward cross-border mergers
and acquisitions to G7
countries, 1995-2004
Billion USD
Billion USD
400
350
350
United Kingdom
300
300
250
250
France
200
Germany
United States
200
United Kingdom
United States
150
150
Germany
France
Japan
Canada
50
Italy
50
Italy
0
0
1995
Canada
100
100
1996
1997
1998
1999
2000
2001
2002
2003
2004
1995
1996
1997
1998
1999
2000
2001
2002
10
2003
2004
Outward cross-border mergers and
acquisitions by OECD countries
Average 2000-2004
United Kingdom
United States
France
Germany
Canada
Netherlands
Spain
Sw itzerland
France
Netherlands
Japan
Italy
Australia
Spain
Switzerland
Belgium
Mexico
Finland
Korea
Norw ay
Denmark
Belgium
Denmark
Luxembourg
Ireland
Norway
Mexico
Finland
Austria
Portugal
Greece
New Zealand
Iceland
Korea
Hungary
Poland
Turkey
Czech Republic
Slovak Rep.
0
Canada
Italy
Luxembourg
50
Germany
United Kingdom
Sweden
Japan
100
United States
Australia
Sw eden
150
Inward cross-border mergers and
acquisitions to OECD countries
Average 2000-2004
Ireland
New Zealand
Poland
Portugal
Austria
Czech Republic
Hungary
Slovak Rep.
Greece
Turkey
Iceland
0
50
100
150
Billion USD
Billion USD
11
THE ECONOMIC ACTIVITY OF MULTINATIONALS
The concepts of influence and control
 The basic criterion used to determine whether an
investment is a direct investment is its capacity to exert
“influence” on company management.
 The notion of influence is reflected, in statistical terms, in
the holding of more than 10% of the ordinary shares or
voting rights, while any investment below 10% is
considered to be portfolio investment.
 Concerning
data on the activities of multinational
enterprises, the notion of influence is not sufficient to allow
data to be collected in a coherent and operational manner,
whence the need to resort to the notion of “control”.
12
Definition of foreign-controlled affiliates
 An affiliate is considered to be foreign-controlled if the majority of ordinary
shares or voting rights (over 50% of the capital) are held by a single foreign
(non-resident) investor or else by a group of foreign investors acting in concert,
such as the members of the same family or certain enterprises and their
affiliates.
 More generally, the notion of control means the ability to appoint a majority of
the directors empowered to manage the enterprise, direct its activities and
determine its strategy.
 In some cases, control may be exercised by a foreign investor who does not
own the majority of the shares with voting rights, in particular if the other
shareholders are highly dispersed. In that case, national authorities must verify
that the shareholder in question really exercises control and manages the
enterprise.
 Control may be exercised either directly or indirectly.
In practice, an
enterprise may indirectly control another through a third enterprise, even if it
does not directly hold the majority of shares with voting rights.
For further details, see “OECD Handbook of Economic Globalisation
Indicators”, chapter 3, section 3.3.2.
13
Example of indirect control
Indirect control in inward perspective
90%
X
60%
Y
Country B
Compiling country A
Z
Country C
Indirect control in outward perspective
60%
Y
90%
X
Z
Country B
90%
80%
W
Compiling country C
Country A
V
14
Definition of the geographical origin of foreign-controlled affiliates
 In line with the recommendations of the OECD Handbook on Economic
Globalisation Indicators, the country of origin of a foreign investment is not the
country which invests directly, but the country to which the unit of ultimate control of
the investment belongs.
 An investor (company or individual) is considered to be the investor exercising
ultimate control over an investment if it is at the head of a chain of companies and
directly or indirectly controls all the companies in the chain, without itself being
controlled by any other enterprise or any other investor.
15
Definition of parent company
 Inward investment
In a compiling country, the parent company of a foreign-controlled affiliate is the
first foreign investor outside the borders of the country in question which exercises
direct or indirect control over that affiliate. Consequently, in many cases, the parent
company may be a company other than the unit of ultimate control.
 Outward investment
From the viewpoint of the compiling country, the parent company of an affiliate
controlled by residents of that country and located abroad is the consolidated
enterprise (group of enterprises) which comprises the domestic enterprise which
invests abroad and the domestic firms which it controls directly or indirectly inside the
compiling country.
Thus expenditure on R&D by parent companies in the United States include all
R&D laboratories which are directly or indirectly controlled by the headquarters of the
group to which they belong. For further details, see also OECD Handbook on
Economic Globalisation Indicators, Paris, 2005.
16
Inward investment: identifying the parent company and the
parent group abroad
Country 5
Country 3
90%
E
B
30%
40%
70%
A
C
60%
D
80%
F
Compiling country 1
Country 2
Country 4
Country 6
Parent company under foreign control
C
80%
Country 3
A
70%
B
Compiling country 1
Country 2
17
Defining an entreprise group
An enterprise group (again according to Council Regulation EEC No. 696/93) is
an “association of enterprises bound together by legal and/or financial links. A group
of enterprises can have more than one decision-making centre, especially for policy
on production, sales and profits. It may centralise certain aspects of financial
management and taxation”. Its activities may be in the industrial, service or banking
sectors, and sometimes concurrently in two or all three (conglomerates). It may be
located within a given country (in the case of a domestic group) or, as is more
commonly the case, in several countries (in the case of a multinational group).
There are two types of enterprise groups associated with outward investment that
have to be considered:
• The first is a set of enterprises and establishments in which a parent company
owns a majority interest and exercises direct or indirect control. All the enterprises
and their parent company are located in the same country. This is in fact an
enterprise whose accounts are consolidated.
• The second form of “enterprise group” or multinational group, extends beyond
a single country and also encompasses directly or indirectly controlled affiliates in
different countries.
18
Example of a multinational
19
Foreign-controlled affiliates’ share of manufacturing turnover
and employment, 2004
Employment
Turnover
Ireland
Hungary (2003)
Belgium
Czech Republic
Canada
Poland
Netherlands (2003)
United Kingdom
Sweden
Luxembourg (2003)
France
Australia (2000)
Norway (2003)
Germany
Spain
Austria (2001)
United States (2003)
Denmark (2002)
Portugal (2002)
Finland
Italy
Turkey (2001)
Japan (2003)
20
0
10
20
30
40
50
60
70
80
90
%
Number of employees of affiliates under foreign
control in the manufacturing sector
Change between 1990 and 2001 in thousands
United States
France (1)
Poland (2)
Hungary
United Kingdom (3)
Sweden
Italy (4)
Turkey (4)
Ireland
Japan (4)
Netherlands
Germany
-300
-200
-100
0
100
200
300
400
21
Foreign-controlled affiliates' share of manufacturing
value added, 2001
Ireland
Hungary (1)
Sweden
Czech Republic (1)
France
Australia (2)
Norway (1)
Netherlands
United Kingdom (3)
Spain
Turkey
Italy
Finland (1)
United States (1)
Portugal
Denmark (3)
0
10
20
30
40
50
60
70
80
90
%
22
Compensation per employee of affiliates under foreign control
in the manufacturing sector
Total manufacturing firms = 100
1995
2001
105
111
Finland (1)
France
109
108
Sweden
110
108
111
Denmark (2)
112
112
Ireland
Norway (1)
117
114
United States
117
107
118
Czech Republic (1)
120
118
Netherlands
130
125
Hungary
145
United Kingdom (2)
126
149
Spain
219
223
Turkey
0
50
100
150
200
250
23
Parent companies' share in manufacturing employment
in selected OECD member countries, 2001
% 60
50
40
30
20
10
0
United States (1)
Finland
Luxembourg (2)
Sweden
Germany (3)
Belgium (3)
France
24
THE INTERNATIONALISATION OF
TECHNOLOGY
1. The internationalisation of industrial R&D
2. Technology receipts and payments
3. Trade in high-technology products
25
The internationalisation of industrial R&D
A. Setting up R&D laboratories abroad by investing
countries (outward investment)
B. Establishment of R&D activities in the host country
by foreign-controlled affiliates (inward investment)
C. Financing of R&D from abroad or destined for
abroad
26
Share of affiliates under foreign control in total business sector R&D
expenditures, 2004
Ireland
Hungary
Belgium
Czech Republic
Sweden
Australia
United Kingdom
Canada
Netherlands
Germany
Italy
France
Portugal
Slovak Republic
Poland
Finland
United States
Turkey
Greece
Japan
0
10
20
30
40
50
60
70
80
%
27
Breakdown by country of growth in R&D expenditure by affiliates
under foreign control between 1995 and 2003
Billions of PPP dollars
Total of selected countries
38.1
United States
15.0
Germany
6.7
Other OECD (1)
5.0
United Kingdom
4.6
Japan
2.9
Sweden
2.5
France
2.4
Canada
1.5
Netherlands
1.1
Czech Republic
0.5
Ireland
0.4
Finland
0.3
Hungary
0.3
Poland
-0.0
-1
1
3
5
7
9
11
13
15
17
28
Financing of BERD by abroad and share of R&D under foreign control
Avererage of the 3 latest years (2001-04)
Share of R&D under foreign control (%)
80
70
Ireland
Hungary
60
Belgium
50
Czech Republic
Sweden
40
United Kingdom
Canada
30
Portugal
Germany
Slovak Republic
20
Italy
Netherlands
France
Finland
Poland
Turkey
10
Greece
Japan
0
0
5
10
15
20
25
30
Percentage of BERD financed by abroad (%)
29
Growth of the main R&D sectors in the OECD area
Billion constant PPP dollars at 2000 prices
140
120
ICT manufacturing1
100
80
60
Motor vehicles
40
Pharmaceutical
s
Chemicals
20
ICT services 2
Principal activity R&D
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
30
2003
Share of R&D under foreign control by industrial sector, total
OECD, 2001
%
50
40
30
20
10
0
Pharmaceuticals
Motor vehicles
Chemicals (exc.
Pharmaceuticals)
Manufacturing ICT
31
R&D expenditure of multinationals under European control at the
world level, 2005
Billion USD
Germany
France
United Kingdom
Sw itzerland
Netherlands
Sw eden
Finland
Italy
Denmark
Belgium
Spain
0
Source: 2006 DTI R&D Scoreboard.
10
20
30
40
50
32
Business sector R&D expenditure by affiliates abroad as a
percentage of domestic R&D expenditure in selected OECD countries
1995
2003
% 120
100
80
60
40
20
0
Switzerland (1)
Germany
Sweden
Finland (2)
Belgium
United States
Japan (3)
Italy
33
Main categories of technology balance of payments
1. Technology transfers:
•
•
•
•
Patents
Unpatented inventions
Licences (linked to patents)
Know-how
2. Transfers of designs (sales, licences, franchises), trademarks and
patterns
3. Provision of technical services, comprising:
• Technical and engineering studies (project design and implementation)
• Technical assistance
4. Provision of industrial R&D (performed abroad or financed from abroad)
34
Technology balance of payments (receipts - payments) as a
percentage of GDP, 2005
Luxembourg (2004)
5.5
Sweden
United Kingdom
Denmark
Belgium
United States
Japan
Finland
Canada
Netherlands
Germany
France (2003)
Norway
Australia
Italy
Mexico (2004)
Switzerland
Slovak Republic (2001)
Portugal
Austria
Korea (2003)
Poland (2002)
Czech Republic
New Zealand
Hungary
Ireland
35
-0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8
%
Aspects of trade globalisation

Input-output based indicators

Trade involving MNEs

Intra-firm trade
Trade in intermediate goods
Intra-regional and extra-regional trade
Intra-industry trade
Calculating trade balances based on capital
ownership
Measuring international subcontracting





36
Import content of exports of manufactured goods
mid eighties
mid nineties
United States (85-97)
United Kingdom (84-95)
Netherlands (86-97)
Japan (85-97)
France (85-95)
Denmark (85 -97)
Canada (86-97)
Australia (86-94/5)
0
10
20
30
40
50
%
37
Export and import propensity of
affiliates under foreign control in the
services sector, 2001
Export and import propensity of
affiliates under foreign control in the
manufacturing sector, 2004
Import propensity
Export propensity
Ireland
Import propensity
Czech Republic (2002)
Netherlands (3,4)
Austria (2001)
France
Portugal (2002)
Austria
Finland (2001)
Japan (3)
Sweden
Sweden (4)
Poland
Spain (2)
Netherlands (2003)
Poland (2)
France
Portugal (2)
Japan (2003)
United States (2,3)
0
United States
10
20
Export propensity
30
40
%
0
20
40
60
80
100 %
38
Share of intra-firm imports in total
imports of affiliates under foreign
control
Share of intra-firm exports in total
exports of affiliates under foreign
control
%
90
%
90
80
United States
80
Sweden
70
Japan
70
60
60
Netherlands
50
United States
50
40
Netherlands
40
30
30
Japan
20
20
10
0
1993
10
94
95
96
97
98
99
2000
2001
2002
2003
2004
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
39
Trade balance of the US total
economy
Billion USD
Trade balance of the US
manufacturing sector
Billion USD
0
0
Firms controlled by the US
-50
-50
Affiliates under
foreign control
-100
Affiliates under
foreign control
-100
-150
-150
-200
All firms
-250
All firms
-200
-300
Firms controlled
by the US
-250
-350
-300
-400
-350
-450
-500
-400
-550
-450
-600
-500
-650
-550
-700
-750
40
-600
1991
1993
1995
1997
1999
2001
2003
1991
1993
1995
1997
1999
2001
2003