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Problems of measurement and analysis in the national accounts

under rapidly growing globalization.

Soli PelegCentral Bureau of Statistics, Israel

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Main issues due to globalization

• Abundance of flows of services and intangibles.

• Joint international production.

• Outsourcing across borders.

• Complicated transactions in mergers and swaps of stocks.

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Flows of services and intangibles• Flows of services and transactions not

sufficiently covered in existing surveys and administration data.

• Former main source of data – banking data.

• No control of foreign currency : Firms may leave foreign currency abroad, classification less reliable.

4

Improving coverage• Banking data gradually supplemented

and compared with other data sources.

• VAT data on exports revenue classified using business register, linked to customs data, banking data and compared.

• Special survey on foreign transactions in services.

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• As more data become available comparisons between various data sources reveal problems with existing sources.

• Need for solutions of important specific problems.

Specific problems

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Joint production across borders

• Many services and intangibles, which can be transferred abroad over the internet or telephone, and may not be registered.

• For affiliates often only registration of finance of compensation of employees .

• Even if is transfer registered, may be valued at cost or at “transfer” prices and not at market value.

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Joint production across borders

• As banking data gradually replaced by enterprise data, enterprises mostly include a minimum mark-up as required by tax authorities in the countries involved.

• But since a joint production, market value of production should be divided to reflect their part adequately.

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Improving measurement of joint production across borders

• Separately identify enterprises that engage in a joint international production, since their structure and production methods different.

• Using data on multinational enterprises (MNE’s) collected according to guidelines in OECD Handbook on Economic Globalization Indicators.

Improving measurement of joint production across borders

Total sales

Thereof: sales from Israel (not

including exports to affiliates)

Exports from Israel to

affiliates abroad

2002 24.7 9.7 3.9

2003 27.8 10.5 4.1

Table 3. Multinational Enterprises with a parent company based in Israel (OUT)

Billion $

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Improving measurement of joint production across borders

• However, coverage not sufficient for a full picture of the joint activities, since IN data only cover domestic affiliate.

• Data also deficient – use of “transfer prices” and lack of information on market value of parts in joint production.

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Improving measurement of joint production across borders

• Further improvement by combining and analyzing domestic data together with data collected abroad on enterprises that engage in joint production.

• If not possible to obtain data on share in joint international production, at least figures on gross joint international production.

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Outsourcing across borders • Outsourcing across borders has become

common – clothing, textiles, diamonds, semiconductors.

• Many enterprises with full outsourcing of processing - so called fabless enterprises.

• A proposal for measurement of fabless enterprises, also useful for deciding how to treat partial outsourcers.

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Fabless enterprises

• All processing outsourced, and often final product sent directly from the sub-contractor to customers, so that no flow of imports or exports of goods from the domestic country.

• Although resemble merchanting services – additional important activities, such as R&D and management of joint production.

• Net income of domestic enterprise usually amounts to a substantial percentage of the value of the production.

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Proposal for measuring fabless enterprises

• Consider activities of enterprise using concept of “converter” from NACE 1.1 to decide how to classify enterprise (under trade or manufacturing) and account for transactions with ROW.

• Fabless enterprises that own patent rights on products, engage in R&D activity, and own and sell final products under their name, defined as converters and classified as manufacturing.

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Proposal for measuring fabless enterprises

• Gross registration of flows of goods, since converters.

• To facilitate use: separate sub-category: Goods/services under outsourced production.

• • Further divide between:

– a. Outsourced to affiliates

– b. Outsourced to non-affiliated enterprises.

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Takeovers of companies across borders

• Takeovers of companies (especially start-ups) across borders common since late 1990’s.

• Measurement of mergers of companies in different countries are problematic.

• In many cases the prices of takeovers will reflect the value of a product - a new communication technology, originals of software etc. - developed within the company.

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Takeovers of companies across borders

• Since most such products are of an intangible nature, in practice, the transfer of the product in connection with sales of enterprises is often not registered, and only a financial transaction is recorded. As a result exports or imports are undervalued.

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Improvement in measurement of takeovers of companies across borders

• Newspaper clippings or reports by market analysts on sales of companies to abroad collected on a daily basis.

• Compared with banking data collected for Balance of Payments estimates, to check how the transactions are registered.

• Details on takeovers examined, information gathered from persons involved in the transaction, if possible.

• A decision tree to decide if sale of a product involved or not.

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The purchased company has developed a product or is at the final stages of development of a product

No Yes

No sale of product involved

Yes No

After the sale the purchasing company intends to market or produce the product developed, together with existing products.

The purchased company continues to be active in the domestic country

Yes

No The whole transaction defined as sale of product

The purchased company will only engage in R&D in the domestic country

The purchased country will also market and produce the developed product

Part of the transaction is sale of product, see below

Part of the transaction is sale of product, see below

No sale of product involved.

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New issues

• The improvement of measurement is an ongoing process, and new problems are revealed over time.

• Among recent issues: production involving a number of countries in Qualified Industrial Zones (QIZs).

• Impact on production and trade in the countries involved, and not clear if adequately measured and registered.

• Necessary to separate the data for such zones.

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Problems of analysis• Even if problems of coverage and classifications in data

sources solved, problems of analysis due to joint international production and outsourcing across borders.

• Proposed to publish figures for joint international production with details on input, output, and income distribution, either through cooperation by partner countries, or by international organizations.

• The structure of input-output tables could be changed to facilitate such work.