Globalisation and national accounts Robin Lynch UK Office for National Statistics

Globalisation and national accounts  National accounts aim to measure the economic activities of a nation  Multi-nation activities are a measurement problem for national accountants

Globalisation and national accounts  Once upon a time People lived in a village People lived in a village People worked in the village People worked in the village The whole production process was in the village The whole production process was in the village Output was sold in the village Output was sold in the village Villagers bought local produce Villagers bought local produce

Globalisation and national accounts  People lived in a village  People have second homes  People live and work abroad but retain a centre of economic interest in their home country  People holiday and spend a lot of money abroad

Globalisation and national accounts  People worked in the village  People work abroad  People work in many different places in the world

Globalisation and national accounts  The whole production process was in the village  Multinational companies organise themselves across the world to produce efficiently, and minimise global tax burden  Design centre in UK  Production in Thailand and Mexico  Marketing in United States  Financial centre in the Netherlands  Can we produce national accounts from observation of this global process?

Measuring production across national boundaries  Toll-processing – no charge for goods, no change of legal ownership  Merchanting – an agent provides goods from one country to another, without the goods ever crossing the agent’s country border  Export of capital services from intellectual property such as design – are they captured?  Multi-nationals organise on ownership principles, not territory, so measuring territories (nations) is difficult

Example Multinational Insurance  A multi national corporation has a computer centre in Canada, a help call- centre in India and sales in the UK.

Multi National Production account Uses Material costs 50 Computer services x Call-centre services y Wages100 Profits 50 50ResourcesSales200 Computer services x Call-centre services y

Example Multinational Insurance  Let the value of the computer services to the rest of the group be 10, 5 to the sales activity in the UK and 5 to the call-centre activity in India.  Let the value of the call-centre services to the UK sales activity be 20

UK Production account Uses Material costs 40 Computer services 5 Call-centre services 20 Wages80 Profits55ResourcesSales200

Canada Production account Uses Material costs 5 Wages Profits Resources Computer services 10 10

India Production Account Uses Material costs 5 Computer services 5 Wages 5 Profits 5Resources Call-centre services 20 20

Example Multinational Insurance  Now suppose the computer services to the rest of the group are re-valued at 50, 25 to the sales activity in the UK and 25 to the call-centre activity in India.

UK Production account Uses Material costs 40 Computer services 25 (5) 25 (5) Call-centre services 20 Wages80 Profits 35 (55) ResourcesSales200

Canada Production account Uses Material costs 5 Wages Profits 30 (-10) 30 (-10)Resources Computer services 50 (10) 50 (10)

India Production Account Uses Material costs 5 Computer services 25 (5) 25 (5) Wages 5 Profits -15 (5) Resources Call-centre services 20 20

Example Multinational Insurance  So the profits spread has changed from UK 55 Canada-10 India 5 To UK 35 Canada 30 India-15

Globalisation and national accounts  Once upon a time People lived in a village People lived in a village People worked in the village People worked in the village The whole production process was in the village The whole production process was in the village Output was sold in the village Output was sold in the village Villagers bought local produce Villagers bought local produce

Globalisation and national accounts  Output was sold in the village  Output is sold abroad  Output is sold on the world wide web

Globalisation and national accounts  Villagers bought local produce  We buy from abroad  We buy as we travel abroad  We buy on the internet

Globalisation and national accounts  This day concentrates on the measurement of production  The first paper from Canada describes how a register can meet the demands of national measurements in global production process. Presented by Michel Girard, Director of Industry Accounts Division in Statistics Canada

Globalisation and national accounts  Second paper is presented by Nico van Stokrum from the Netherlands, and sets out a practical approach to measuring national production as part of global activities

Globalisation and national accounts  After the morning break, Steve Landefeld, Director of Economic Statistics in the US Bureau of Economic Analysis will present a very wide ranging paper on measuring globalisation. This will be followed by discussion and then we break for lunch.

Globalisation and national accounts  After lunch, Dave Hobbs of the UK will present a pragmatic approach adopted by the UK in measuring firms in the UK who are part of a global toll-processing set-up.  Then before the afternoon break, Soly Pelig will present a paper on the measurement of cross-border transactions with particular attention to intellectual property

Globalisation and national accounts  Finally, Carol Carson, Project Manager of the Updating SNA process, will present current plans on how this issue will be addressed in the updated SNA.  The session is wound up with a discussion with authors providing a panel to answer questions from the floor.

Globalisation and national accounts  Does it matter?  ECB paper Dec 2005  Asymmetries between the Euro area and UK

Globalisation and national accounts Euro bn UK importsEU exportsdiscrepancyUK exportsEuro Z importsdiscrepancy from Euro zto UKto Euro Zfrom UK Goods Services FDI

Globalisation and national accounts net UKnet Euro Zdiscrepancy to Euro Zto UK

Globalisation and national accounts  UK and Netherlands will exchange data on a confidential and bilateral basis  Article 8 (3) of EU regulation No 184 / 2005 allows this exchange in order to improve EU statistics  What will the businesses think?

Globalisation and national accounts  Eurolinks and Eurogroups Register  European registers of multi-national companies will keep data on ownership and links of control between legal units in the EU  A Community register of multi-nationals will be introduced from 2008