1. Globalization of trade flows -- what you see is not what you get --
2nd WPTGS meeting, OECD
Paris,

2. Provisional Outline
Global economic crisis - decomposition of trade flows (wysinwyg)
Trade and Production: Import content of exports -- statistical measurement
Economic importance
Statistical measurement
Case studies --Trade & Business Links
Direct measurement
Indirect measurement
Trade:
Goods for processing
Statistical measurement in BPM6/IMTS2010
Intra-firm trade
Statistical measurement in SNA 2008/BPM6/IMTS2010

3. Global economic crisis
Growth rates of merchandise trade by region, Q1 2009
... but second quarter world exports increased 8% (q/q)

5. Import content of exports – trade in value added
Three ways of measuring the fragmentation of the value chain
Using firm surveys
Foreign trade statistics
The increase in the share of parts and components in trade flows indicates more production-sharing between countries.
Using international input-output tables to depict inter-industry relations.
I-O shows how the output of one industry is an input to each other industry. Input is enumerated in the column of an industry and its outputs are enumerated in its corresponding row.
International I-O extends the inter-sectoral relations to several countries. It shows how dependent each national industry is on all other sectors from the domestic economy and from other partner countries, both as customer of their outputs and as supplier of their inputs.
 International I-O is conceptually very simple, but requires high-quality data. It is a powerful modeling tool for:
Measuring size/magnitude of production linkages and the “length” of the chains
Computing Vertical Specialization Index
Tracking the international transmission of demand/supply shocks

6. The “American car”* Firm surveys Trade and business links ?
only 37 per cent of the production value is generated in the US
30 per cent go to Korea for assembly
17.5 per cent to Japan for components and advanced technology
7.5 per cent to Germany for design
4 per cent to Chinese Taipei and Singapore for minor parts
2.5 per cent to the UK for advertising...
1.5 per cent to Ireland and Barbados for data processing...
... and that was in 1998
* Grossmann, G. Rossi-Hansberg, E. The Rise of Offshoring, It’s not wine for cloths anymore
Firm surveys
Trade and business links ?

7. Trade in intermediate goods, 2008

8. Trade in services – offshoring/tasks
Estimating the size of offshore outsourcing is subject to definitional and statistical challenges
Classifications do not distinguish services to end-use clients or intermediate, or business-to-business services.
Consequently, estimates vary
- 2005: OECD's and UNCTAD include all IT-enabled services, estimate at US$836 billion.[1]
2007/8 UNCTAD estimated the value of trade in "IT-enabled" services at US$1.1 trillion in 2005, ...[2]
London School of Economics[3] estimates global market of offshore outsourcing of IT (ITO) and business process services (BPO) to exceed US$55 billion in 2008, 20 per cent increasing annually over next five years.
Leading recipients of IT and business process off-shored trade have been Brazil, Russia, India, and China. India’s exports US$40 billion, China, Russia, and Brazil US$5 billion, US$3.65 billion, and US$800 million respectively in 2008.
[1] OECD, "Expanding International Supply Chains: The Role of Emerging Economies In Providing IT
and Business Process Services", Working Paper No. 52, May 2007.
[2] UNCTAD, Information Economy Report UNCTAD.
[3] Willcocks, Griffiths, and Kotlarsky, Beyond BRIC: Offshoring in non-BRIC countries: Egypt – a new growth market, LSE Outsourcing Unit, January 2009.

9. Using Input-Output tables to measure vertical trade
Asian Input-Output tables (IDE-Jetro)
Leontief inverse
= (I-A)-1
Vertical trade (import content of exports)
= M * (I-A)-1 * X
A: technical coefficients matrix I: identity matrix X: export vector M: vector of shares of import per sector in sector output

10. An alternative measure of bilateral US trade deficit with China

11. Goods resulting from inward processing Goods for inward processing
Goods for Processing
The importance of goods for inward processing in developing economies
total exports and imports (minimum approximation),
(Balance of payments data, in billion dollars)
Exports, BOP basis
1000
2000
3000
4000
5000
6000 01 02 03 04 05 06 07
2008
Goods resulting from inward processing
Other goods
Imports, BOP basis
Goods for inward processing
Source: IMF Balance of Payment statistics partially completed with WTO estimates for missing data.

12. Goods for Processing

13. A fictive example, China 2007
Goods for Processing
A fictive example, China 2007

14. Example Manufacturing services that change the condition of the goods1
10 (for acquiring raw oil from B)
15 (for refining oil
by C)
30 (for refined oil by C on behalf of A) 3 5
Money flow
Resident
Economy A
Resident
Economy B
Goods & Services Account: Economy A
General merchandise (with B): 10 DR
General merchandise (with D): 30 CR
Manufacturing services on physical inputs owned by others (with C): 15 DR
Raw oil (acquired by
A previously)
Owner: A 2 4
Refined oil, delivered
by C on behalf of A), owner: A
Goods flow
Goods Account: Economy B
Goods exports to A (10 CR)
Services Account: Economy C
Manufacturing services (15 CR)
Resident
Economy C
Resident
Economy D

15. Goods for Processing
The application of the new BPM6 recommendations can lead to significant divergences in trade aggregates
Fear: the BOP treatment may lead to a loss of data in merchandise as principal data source
Alter statistical description of an economy’s economic structure: shift between goods and services, structure of industries/output ratios/ productivity measures
Data collection: revision of questionnaires, register links, need for sound compilation guideline
Warn users against break in series, consistency of time series (ratios, shares and rankings change)
for users: will link between int’l. trade and production be less ambiguous? Where is the limit between goods for processing and manufacturing?

16. Intra-firm trade Anecdotal evidence:
One-third of all [merchandise] trade is within companies
for the US in 2006, 37 to 38 per cent of its trade in merchandise is intra-firm (Akram/Khan/Holady study)
and 28 per cent of its trade in services is intra-firm (2007)

17. Intra-firm trade 2008 SNA BPM6 IMTS 2010 (draft):
In principle, items transferring across borders should be valued at “arm’s length” prices
BPM6
(10.150) Services for the general management of a branch/subsidiary/associate...included in other business services
IMTS 2010 (draft):
...transactions between related parties (whatever the definition of “related") should be included in international merchandise trade statistics the same way as if these transactions would take place between unrelated parties...

18. Conclusions
IMTS 2010 – mode of transport, country of consignment, imports (fob), goods for processing, intra-firm trade
MSITS 2010 – other business services, mfr services on inputs owned by others
More research needed into trade in value added
Intermediate goods
I/O approach
New data sources: trade and business links