Transcript The Importance of, and Pitfalls in, Measuring Globalization J

The Importance of, and Pitfalls
in, Measuring Globalization
Conference of European
Statisticians/OECD National Accounts
Meeting
Geneva, April 25-28, 2006
J. Steven Landefeld and Obie G. Whichard
Measuring Globalization
 Importance of globalization and Cross-Border
Trade
 Globalization, offshoring, and Lou Dobbs
 Indian Software Services
 “Dark Matter”
 Over or underestimate of current account deficit
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GDP and Employment
[Indexed to trough of the recession (01:IV = 100)]
120
115
Real GDP
110
105
100
Total nonfarm employment
95
01:IV
02:I
02:II
02:III
02:IV
03:I
03:II
03:III
03:IV
04:I
04:II
04:III
04:IV
05:I
05:II
05:III
05:IV
Source: BEA and BLS (CES data).
www.bea.gov
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U.S. and Indian Data on Trade in BPT Services
Business, Professional, and Technical Services, 2002
[Millions of U.S. dollars]
India (NASCOMM)
Reserve Bank of India adjusted
to IMF reporting rules
BEA estimate adjusted to
include rough
estimate of affiliated trade *
BEA unafiliated trade
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Source: BEA, NASCOMM, Reserve Bank of India (RBI), and BEA estimates based on RBI data.
* BEA unaffiliated trade with India increased by the ratio of total unaffiliated trade to total unaffiliated and affiliated
trade in computer and information services.
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Measuring Globalization
 Dark Matter: The problem of distentangling services
trade from financial transactions.
 Higher returns on USDIA than FDIUS
 Result of implicit exports of U.S. knowledge capital that raise
U.S. profits and or lower IIP?
 Result of transfer pricing that lowers USDIA?
 Host of other factors controlling returns and asset prices:
 Currency risk, country political risk, country cyclical risk,
relative effective tax rates, relative interest rates/opportunity
costs, historical investment pattern, and capital gains and losses.
 Very difficult – and risky - to impute to services.
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International Transactions and
Alternative Measures
[Billions of dollars]
100
Existing balance on income
Adjusted balance on income
0
-100
-200
Existing balance on goods and services
-300
Adjusted balance on
goods and services
-400
-500
-600
-700
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Source: BEA.
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Potential Volatility Involved in
Measuring Intangibles
[Billions of dollars]
18,000
Implicit value of intangibles: $7 trillion (2000:I)
16,000
14,000
12,000
10,000
8,000
6,000
Implicit value of intangibles: -$2 trillion (2002:III)
4,000
2,000
0
96:I
96:III
97:I
97:III
98:I
98:III
99:I
99:III
00:I
Market value of equities
00:III
01:I
01:III
02:I
02:III
03:I
03:III
04:I
04:III
Tangible assets
Source: FRB Flow of Funds (L.102 and B.102) release March 9, 2006. Data based on nonfarm nonfinancial corporate
business.
Note: A number of analysts attributed the large difference between equity values and the replacement value of plant
and equipment to intangibles during the market run-up in the late 1990s.
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Measuring Globalization
 Pitfalls in (and techniques for) estimating crossborder services
 Importance of detailed estimates
 Uses of counter-party data
 “Joint-products”
 Estimating financial services
 Globalization and incomplete reporting by large
companies
 The rise in direct transactions and small-firms in
international trade
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Measuring Globalization
 Pitfalls in (and techniques for) estimating crossborder services (continued)
 Travel and passenger surveys
 Global competition and differential pricing
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Measuring Globalization
 MNC Operations Data (Foreign Affiliated Trade
and Other Data) key in presenting baseline facts
for offshoring:
 US MNC’s employment, sales, spending in the U.S. vs.
abroad.
 US MNC’s overseas sales to local area vs. other regions,
and the U.S.
 U.S. MNC investments in large in growing markets vs.
low wage countries.
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Measuring Globalization
 MNC Operations Data Issues:
 Increasing use of holding companies
 1982 – Holding companies accounted for 9% of USDIA; by 2004
this share had risen to 34%
 Increasing problems for industry and geographic data
 Industry of parent vs. industry of subsidiary
 BOP vs. Ultimate beneficial owner (other treatments)
 Increasing incidence of inversions
 Similar issues (to India) relating to bilateral data
 Increasing importance of publicizing and explaining
MNC data.
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China Statistics Comparison
FDI Flows to China, 2000-2002 Total Flows
[Percent of figures reported by China]
100
90
80
70
60
50
40
30
20
10
0
UK
Germany
France
Japan
US
Netherlands
Malaysia
Thailand
Source: UN, World Investment Report 2005.
www.bea.gov
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Possible Causes of a Change in the Domestic
(U.S.) Share of Employment by a U.S. MNC
www.bea.gov
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