DEVELOPING INTEGRATED ECONOMIC ACCOUNTS FOR GLOBAL VALUE CHAINS Nadim Ahmad Head of Trade and Competitiveness Statistics, OECD NBS-OECD Workshop on National Accounts Guangzhou, December 2 – 5, 2014

SETTING THE SCENE 2

Statistics and Policy Increasing international fragmentation of production has obscured ability of conventional statistics to inform policy..... at the same time as demand for statistics in this area is greatest – Gross trade statistics multiple count flows – Few statistics on exporting & importing firms – Scant information on foreign affiliates (home and abroad) Particularly given increased importance of flows in IPPs And where data does exist it is often not internally consistent, reflecting different surveys, coverage, concepts, units – FATS/FDI/TEC/Trade data/National Accounts 3

OECD-WTO TiVA initiative Was the first part of the response to growing policy needs 4

TIVA 5

Why TiVA? Gross trade statistics increasingly ‘multiple count’ flows in intermediates as the production process develops over several countries … 6

Why TiVA?.. meaning that gross trade statistics may create ‘misleading perceptions’ and imperfect policies 7

For example…. Where are our export markets? Which sectors create most value and jobs? Does protectionism work? Is it counter- productive – Are there costs on importers of intermediates, particularly when they are significant exporters. – What about those firms further upstream providing inputs to the imports? How should we interpret bilateral trade balances? 8

How can we respond? By measuring the value that is added by individual firms in the production process 9

HOW? 10

How do we measure TiVA? Using a global IO table 11

An Inter-country I-O table National I-O tables Production linkage Final expenditure Income (Value-added) Import procurement info + Bilateral Trade Database by industry and end-use categories (intermediates, capital and consumption goods) 12

The current OECD Inter-Country I-O model 57 economies + Row, , 37 sectors 13 OECDAll OECD 34 countries BRIICS Brazil, China, India, Indonesia, Russian Federation, South Africa Other EU27 Bulgaria, Cyprus, Latvia, Lithuania, Malta, Romania Other G20Argentina, Saudi Arabia Other South Eastern Asia Brunei Darussalam, Cambodia, Malaysia, Philippines, Singapore, Thailand, Viet Nam Other Eastern AsiaChinese Taipei, Hong Kong China OtherRest of the World December: Plus, Colombia, Costa Rica, Croatia, Tunisia and 2011 – 34 sectors released

TiVA on OECD.STAT – industry list 14

TiVA 2014 – Industry List IO Industries ISIC Rev.3 Industry 101t05 Agriculture, hunting, forestry and fishing 210t14 Mining and quarrying 315t16 Food products, beverages and tobacco 417t19 Textiles, textile products, leather and footwear 520 Wood and products of wood and cork 621t22 Pulp, paper, paper products, printing and publishing 723 Coke, refined petroleum products and nuclear fuel 824 Chemicals and chemical products 925 Rubber and plastics products 1026 Other non-metallic mineral products 1127 Basic metals 1228 Fabricated metal products except machinery and equipment 1329 Machinery and equipment n.e.c 1430,32,33 Computer, electronic and optical products 1531 Electrical machinery and apparatus n.e.c 1634 Motor vehicles, trailers and semi-trailers 1735 Other transport equipment 1836t37 Manufacturing n.e.c; recycling 1940t41 Electricity, gas and water supply 2045 Construction 2150t52 Wholesale and retail trade; repairs 2255 Hotels and restaurants 2360t63 Transport and storage 2464 Post and telecommunications 2565t67 Finance and insurance 2670 Real estate activities 2771 Renting of machinery and equipment 2872 Computer and related activities 2973, 74 Other Business Activities (incl. R&D) 3075 Public admin. and defence; compulsory social security 3180 Education 3285 Health and social work 3390t93 Other community, social and personal services 3495 Private households with employed persons 15

TiVA plus A TiVA ‘Cookbook’ – How TiVA is constructed, including do’s and don’ts And more timely TiVA – ‘nowcasting’ with quarterly trade data 16

NATIONAL DATA REQUIRED 17

Bilateral Trade statistics  An international IO table requires high quality international trade statistics – Asymmetries & missing data – Re-exports – Additional information on cif/fob adjustments – Rules for dealing with confidentiality – Supporting Import flow matrices – Estimates of non-residents and residents expenditure abroad – An ability to reconcile merchandise trade/TIS flows with National Accounts SU and IO tables. 18

Merchandise trade asymmetries - examples 19

Services Trade asymmetries - examples 20

Supply-Use and Input-Output Tables – Supply-Use: Tables at Purchasers and Basic Prices….. preferably every year …… but if not: at the very least periodically and recent, with supporting National Accounts information on value-added and output by industry and all categories of final demand – And supporting import flow tables 21

TIVA HIGHLIGHTS AND POLICY IMPLICATIONS 22

Policy implications: services matter GVCs have changed the nature of competitiveness – Fragmentation of Production means that improving competitiveness in exporting sectors is as much about efficiencies upstream as it is in the exporting sector. – This includes services – both imported and domestically provided. 23

Policy implications: services matter Access to efficient services (services trade liberalisation) through all modes of supply, including through foreign presence (Mode 3) Improving behind the border measures that restrict services imports via all modes; OECD STRI illustrates that significant gains can by made through uni-, pluri-, and multi-lateral actions 24

Policy implications: protecting who? Significant import content of exports means that protectionist measures can be counter-productive Affecting competitiveness of exporters using the imports But also upstream exporters providing intermediates subsequently re-imported Import content of Exports, all countries and China 25

Significant share of total intermediate imports used in exports in many countries 26

Policy implications: tariffs can be multiplicative 27

Policy implications: trade facilitation Trade facilitation: transforming border bottlenecks into global gateways OECD Trade Facilitation Indicators Standard setting: avoiding unnecessary restrictions 28

Regions still matter 29

Regions still matter TiVA data may provide insights for increased export penetration within regional GVCs. 30

Who trades with who? GVCs complicate the way we view interactions between producers and consumers, and TiVA highlights the true nature of these linkages 31

The more distant the countries the more likely that gross trade statistics underestimate the relationship Change in trade shares based on Value-Added in 32 Brazil United States

… with significant changes in bilateral trade balances 33

But … Important to remember that TiVA provides a macro-view, with averages and assumptions => the screwdriver view requires drilling down... … significant insights into GVCs and competitiveness can be gained through complementary statistics 34

LINKING TRADE AND BUSINESS REGISTER DATA TO... STRUCTURAL BUSINESS STATISTICS 35

Relatively few firms export (2008 data)

But ‘many’ large firms do … (2008 data)

… and are responsible for considerable shares of exports …

… with a higher export intensity … 39

… and higher import intensities? 40

Ownership matters … (% of total* export accounted for by top # enterprises) * For EU countries, data refer to extra-EU exports instead of total

… and foreign owned firms have higher export intensities 42

Even a focus on the top exporters only can help 43

Most firms only trade with one or two partner countries Firms trading with # number of partner countries, % total trading firms

... provides complementary insights, but … … may not always be coherent across datasets Integration into the core accounting framework can overcome incoherence AND improve quality of TiVA through the measurement of heterogeneity, in a cost effective way – capitalising on existing data More on this later 45 Linked data and FATS data...

BUT TIVA IS ONLY PART OF THE STORY 46

Strong policy need for … Jobs Skills? And productivity for the upgrading story... tasks not activities – Information by ISCO? Investment? – Creating a Trade-Investment Story 47

Jobs in the business sector* sustained by foreign final demand 48 * Business sector = ISIC Rev.3 divisions 10 to 74) Source: OECD, Science, Technology and Industry Scoreboard, 2013 As a % of total business sector employment But where challenges exist in measuring relative productivity between exporting and non-exporting firms and where greater coherence between jobs and value-added data is needed

Coherence,coherence, coherence Coherence between jobs and value-added data... a long standing need Heightened by GVC policy needs, especially as relative labour productivity of ‘GVC’ firms is likely to be higher Which includes differentiating between informal/formal activities And to fully understand GVCs – links to skills 49

Why Investment? Because value added does not always stick (compensation for use of knowledge based assets – where increasingly registration is determined by tax environment) And … statistically, the line between trade in services and property income is becoming more blurred, distorting value-added measures, … – requiring an extended accounting framework that differentiates between foreign and domestically owned firms. 50

Value Added of Foreign Affiliates – share of national total 2009 (ISIC B-N, excluding K) 51

China’s hi-tech exports 52 Source:

The contribution of foreign affiliates to domestic value added in exports, Source: OECD AMNE and TiVA databases53

Ireland’s VA to export ratios? Source: OECD illustrative estimates54

Increase in US TiVA trade balance, adjusted for US affiliate trade in Ireland, 2009 $bn Source: OECD illustrative estimates55

China’s Trade surplus with the US? 56 Source: OECD illustrative estimates

Planned extensions Jobs Skills? – Information by ISCO? Investment? – Creating a Trade-Investment Story Improving quality – Dealing with heterogeneity 57

TiVA key assumptions, … (1)All firms allocated to a particular industry have the same ‘ production’ function (2)For a given product, imports by industries (firms) are sourced from the same mix of countries 58

but... We know these assumptions don’t generally hold (especially with 2008 SNA). – Exporting firms typically import more – And have higher labour productivity than non- exporters (in the same industry) Meaning that import content of export estimates are downward biased Requiring new approach to developing SU tables that better reflects today’s global production: – Linking across datasets 59

AN INTEGRATED ACCOUNTING FRAMEWORK 60

Expert Group on Extended SU tables To create an integrated economic accounting framework for globalisation More detailed SU tables: – Imports With all products at fob and separate column for residents expenditure abroad Broken down by firm characteristics – and used to inform import flow tables – Industries More heterogeneity: Foreign/Domestic, Export/non-export, S/M/L – Exports Broken down by firm characteristic – In the export column but also as an ‘of-which’ of output With non-residents expenditure and re-exports separately identified – With transparent adjustments for some non-observed items (e.g. own account agricultural production) – Jobs by industry row – Emissions by industry row – With new rows for property income flows: interest, distributed income of corporations, reinvested earnings on FDI, investment income disbursements – And, for BEPS: current taxes on income, wealth, etc 61

Use Table 62 With exports broken down, ideally, by destination (main partner countries/regions)

Import Use table 63 With separate tables made available broken down by main country or region of origin ‘groupings’

Supply Table 64

Extensions? 65

MAINSTREAMING 66

A GVC for TiVA and TiVA+ OECD is coordinating international effort to mainstream TiVA and Extended SU tables at the heart of the statistical information system Building regional networks and partnerships including WTO, Eurostat, UNESCWA, APEC, ECLAC, and... ESCAP, AfDB to create a single international TiVA database and Inter-Country IO table Also working bilaterally with countries to improve underlying national data, and accelerate integration 67

THANK YOU FOR YOUR ATTENTION 68