Linking TEC to IO tables Paris, November 2011 Linking TEC to IO tables OECD Working Party on Trade in Goods and Services Paris, November 2011 Contact:

Background Trade in Value-Added (TiVA) Building Blocks –National IO tables Typically aggregated –OECD IO database at 2-digit level (industry) IO approach assumes that goods produced for domestic demand use the same production process (inputs and source) as those produced for export. –But strong evidence that this is rarely the case 2

Evidence shows In practice, considerable heterogeneity within 2 digit groups –Foreign owned firms, as part of GVCs, typically use more imports, and have higher exports. –Smaller firms typically import less & rarely export So even if physical production processes are homogeneous (X in Y out), the anecdotal correlation between Imp & Exp means that TiVA estimates will typically underestimate the extent of GVCs & overstate domestic VA in exports ( assuming that estimates of IC of imports by sector are robust ) – In 1993 SNA. With 2008 SNA treatment of processors the reverse may be true.

An ‘ideal’ world for TiVA National IO tables produced at a detailed level, where industries are disaggregated into groups of firms that have: –High Import & Export intensities –High Import & low Export intensities –Low Import & high Export intensities –Little international trade –Broken down by high-low VA where possible. Going further: measuring Trade in Income –A further breakdown by ownership would also be useful –As would an extension of the SNA production boundary to include trade in IPPs. 4

In the real world This is likely to push resources in NSOs to the limit. Certainly when one considers that in many countries even IC of imports by sector is estimated via assumption (typically proportionality) 5

An alternative approach? Creation of stand-alone indicators based on linking trade registers with business statistics to provide: –IC of total imports, VA, Output and Export figures broken down by High Imp & Exp intensities (inc processors 1993 SNA) High Imp & low Exp intensities Low Imp & high Exp intensities (inc processors 2008 SNA) Little international trade Which could be knitted (by the OECD) into national IO tables for TiVA analysis 6

Improving Not just the quality of TiVA estimates But also the quality of current import matrices (which are often estimated using proportionality assumption). The work would also result in the creation of directly relevant policy indicators……… …… particularly if the information was broken down in other ways e.g. firm size; ownership, age. 7

Feasibility Exploratory work with Turkish data demonstrates that the exercise is feasible and has merit. But a number of issues are raised – chief amongst them concerns confidentiality; –which determines the level of disaggregation that is possible and the thresholds for ‘intensity’ 8

A proposal The OECD would like to develop a proposal to be run by countries participating in TEC (and beyond). –With guidelines developed by the Secretariat in consultation with TEC countries –And preliminary results/conclusions shared within a workshop to determine best-practice and optimal thresholds. 9