1. Globalization indicators The Import Content Of Export
The case of the Netherlands
Marjolijn Jaarsma
Statistics Netherlands
April 27th 2004

2. Agenda Globalization Monitoring globalization with new indicator
Definitions, causes and characteristics
OECD introduction ‘globalization’ indicators
Monitoring globalization with new indicator
Import content of export
Internationalization of production processes
Problems in case of the Netherlands
Re-exports
New model

3. Economic globalization
New phase in international economic transactions, characterized by increasing economic interaction and integration among countries
Trade in goods and services increasingly matched by international investment and multinational activity
International framework has changed
Standard (trade) indicators become less telling
New indicators needed, capable of looking beyond surface FT and FDI

4. How to ‘capture’ globalization
Globalization indicator(s) developed by OECD
Focused on internationalization of production processes rather than international trade and investment
‘Import Content Of Export’
The necessity to import in order to be able to export
Fraction import in an average unit of export
Relative integration with and dependence on foreign production
A high import content of export not necessarily bad

5. Internationalization of production
Analysis of (internationalization of) production processes
Input-output tables (Netherlands)
Supply consists of intermediate deliveries and deliveries to final demand (e + r)
Use consists of intermediate deliveries, import and primary inputs
Total Uses input-output tables OECD Olisnet (40*40 sectors) f
Intermediate deliveries e r m

6. Input-output analysis (1)
Sector output depends on final demand and intermediate demand (which depends on...)
Output cycle
How much output must each sector produce?
: total amount of final demand
: unity matrix
: matrix of technical coefficients
Amount of output each sector needs to produce in order to satisfy final and intermediate demand
Leontieff inverse

7. Input-output analysis (2)
Also imports needed to satisfy intermediate and final demand
Matrix MC resembles matrix A
Ratio of import flow to sector output
Vector x: Amount of Dutch output
Adjusted Leontieff inverse excludes imports
Leontieff inverse essential in OECD indicator

8. Import content of export
‘Manual of economic globalization indicators’
Import Content of Export indicator
: share of import per sector of sector output
: Leontieff inverse (adjusted!)
: share of export per sector in total sectoral export
Yields a single figure for whole economy
Requires the use of Total Uses input-output tables and Import Flows tables (OECD Olisnet)
Multiplying the import ratio’s with the Leontieff inverse shows the amount of import needed to produce intermediate demand ánd final demand, i.e. total output. By multiplying this with the share in total sectoral export, the import content of export is calculated.

9. Import content of Dutch exports
ICOE risen from 33.6% in 1995 to 34.7% in 1997
Decline also found in FT – picked up after 1998

10. Problems Differences classification Re-exports
FT data: commodity flows
Input-output tables: economic activity
Re-exports
Focusing on m and e/E yields structurally lower ICOE
Important activity for Netherlands
Extracted from trade data and represented separately
Re-exports not reported separately for many other OECD countries; somehow assigned to sectoral exports
Different interpretation ICOE indicator between countries
Indicator might not be ready for cross-country comparison
Countries that separate re-exports from international trade data are: Norway, Finland, Denmark, Germany
Countries that do not separate re-exports from international trade data are: UK, Spain, Japan, Italy, Greece, France

11. New model – Adjusted ICOE
Original indicator
: Sum of all intermediate import flows entering sectors of production (as a share of output)
Leaves out re-exports in m and E
Expand composition vector m to include re-exports
Matrix of intermediate import flows (MC)
Matrix of re-exports, as a share of sectoral export
Further manipulations
Import content of export; subdivided for each intermediate delivery !

12. ICOE
Input-output tables 40*40 9*9

13. Import content of export per delivery
To deliver 1 unit of export, sector j needs intermediate deliveries from sector i, which consist for x% of imports
Intermediate deliveries sector 5 (ICT) receives from sector 5, consist for 67.86% of imports
Useful for detailed analysis of internationalization production

14. Adjusted ICOE Objective indicator Import content Dutch exports
Monitoring globalization (1 figure) cross-country
Import content Dutch exports
Whole economy, including re-exports

15. Conclusion Initial indicator overlooks part of Dutch trade
Adjusted calculations lead to higher import content of Dutch exports
On aggregate basis, cross-country comparison possible
Disaggregated suitable for in depth analysis
The fraction imports in an average export unit approximately 40%
Further questions