Final expenditure Leo Hiemstra

Final expenditure Exports and imports (foreign trade) Consumption of households Consumption of government and NPISH Gross capital formation

Final expenditure - Imports (M) - Consumption (C) GDP= C + I + (E-M) - Exports (E) - GFCF (I) GDP= C + I + (E-M)

Final expenditure in the Netherlands % GDP Export of goods and services 83,6 Import of goods and services 74,7 Consumption of households and NPISH 45,0 Consumption of government 27,9 Gross capital formation 18,1

Foreign trade: definition Transactions in goods and services between residents and non-residents. Criterion: Goods: change of ownership between a resident and a non- resident Services: services rendered by a resident to a non-resident unit Not: crossing the border of goods Not: the country where the service is delivered

Foreign trade: changes in ESA 2010 In both ESA1995 and ESA 2010 the criterion for foreign trade in goods is : change of ownership of goods between a resident and a non- resident unit. In most cases “change of ownership” of goods coincides with “crossing the border” of those goods. But not always!

Foreign trade: changes in ESA 2010 Examples of cases in which change of ownership / crossing the border do not coincide: Processing: goods cross the border (to be processed), but the owner remains the same This also applies to Maintanance and repair of goods in another country and Multinationals: intercompany trade Merchanting: There is a change of ownership, but goods do not cross the border

Foreign trade: changes in ESA 2010 Both ESA1995 and ESA 2010 use the change of ownership- criterion for foreign trade in goods, but there is a difference: In ESA1995 all cases were ‘crossing the border and change of ownership of goods did not coincide an exception to the change of ownership-criterion was made. This means that in practice ‘crossing the border’ is the actual criterion In ESA 2010 all the exceptions have been eliminated What does this mean for foreign trade? Some examples

Foreign trade: changes in ESA 2010 Example 1: Processing Country A sends goods (value 20) to country B to be processed (value of processing by B 5); after processing the goods return to country A. ESA 1995: ESA 2010: Gross registration of IT in goods vs Net registration of IT in services

Foreign trade: changes in ESA 2010 Example 2: Merchanting Country A buys goods (value 20) from country B and sells it to country C (for 25). The goods do not cross the border of country A. ESA 1995: ESA 2010: Net registration of IT in services vs Gross registration of IT in goods

Foreign trade: changes in ESA 2010 Consequences of the new ESA 2010 for foreign trade: Shift between trade in goods and trade in services Some transactions will be recorded gross instead of net or vice versa In theory no change in GDP Although conceptually better, measurement is an major problem within (and also outside) the EU, since the regulation for foreign trade statistics (FTS) will not change; crossing the border remains the criterion for FTS

Foreign trade: services Examples: processing services, repair and maintenance, passenger transportation, licence fees and royalties, financial services Foreign trade versus local production: local branch, production on a significant scale one year or more pysicial presence availabilitiy separate accounts examples: construction, transport, fishing and consulting

Foreign trade in goods: valuation Free on board (fob) = price paid by the importer at the exporter’s frontier after payment of export taxes and receipt of any tax rebates Cost insurance and freight (cif) = price of a good delivered at the frontier of the importing country Total export and imports are valued at fob-prices Detailed imports (in SUT) are valued at cif-prices

Final expenditure Exports and imports (foreign trade) Consumption of households Consumption of government and NPISH Gross capital formation

Consumption of households: definition Goods and services Consumption of own production Barter Second hand purchases Unincorporated enterprises: intermediate versus final consumption Tourism: domestic versus national concept

Consumption of households: sources Retailtrade survey (RTS) all larger firms included compulsory participation turnovers by product group, excl. VAT sales specification by branch (Nace) Household budget survey (HBS) small sample size, only households voluntary participation non response and underreporting detailed product specification, incl. VAT weak coverage of services detailed specification by type of outlet

Consumption of households: methods Reconciliation of RTS and HBS - make population and valuation consistent - turnovers from RTS - market shares from HBS (specification by type of outlet) Paid for by households directly of indirectly - examples: housing, financial and medical services Many consumption items based on mixture of sources - examples: utilities, energy, transport, cultural & social services

Consumption of government and NPISH production = sum of costs consumption = production -/- market output (sales) -/- own account capital formation = consumption of own production +/+ social benefits in kind Government consumption individual consumption (education, health, social benefits in kind) collective consumption (public administration and defence)

Actual final consumption 2011, in bln Household actual final consumption 374,1 Household consumption expenditure 265,9 Government individual consumption 102,9 NPISH consumption 5,3 Government actual final consumption 65,2 Government collective consumption 65,2

Excercise

Gross capital formation Gross fixed capital formation Fixed assets: used repeatedly or continuously in the production process for more than one year Examples: buildings, machinery, computer software, R&D Changes in inventories Acquisition less disposals of valuables Points of attention: - Net registration: acquisition less disposals of fixed assets - Delineation with intermediate consumption: small tools, repair & maintenance - Excluded: financial assets, exceptional losses