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The Importance of, and Pitfalls in, Measuring Globalization. Conference of European Statisticians/OECD National Accounts Meeting Geneva, April 25-28, 2006. J. Steven Landefeld and Obie G. Whichard. Measuring Globalization. Importance of globalization and Cross-Border Trade

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The Importance of, and Pitfalls in, Measuring Globalization

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The Importance of, and Pitfalls in, Measuring Globalization

Conference of European Statisticians/OECD National Accounts Meeting

Geneva, April 25-28, 2006

J. Steven Landefeld and Obie G. Whichard


Measuring Globalization

  • Importance of globalization and Cross-Border Trade

    • Globalization, offshoring, and Lou Dobbs

    • Indian Software Services

    • “Dark Matter”

      • Over or underestimate of current account deficit


GDP and Employment

Source: BEA and BLS (CES data).


U.S. and Indian Data on Trade in BPT Services

Source: BEA, NASCOMM, Reserve Bank of India (RBI), and BEA estimates based on RBI data.

* BEA unaffiliated trade with India increased by the ratio of total unaffiliated trade to total unaffiliated and affiliated trade in computer and information services.


Measuring Globalization

  • Dark Matter: The problem of distentangling services trade from financial transactions.

    • Higher returns on USDIA than FDIUS

      • Result of implicit exports of U.S. knowledge capital that raise U.S. profits and or lower IIP?

      • Result of transfer pricing that lowers USDIA?

      • Host of other factors controlling returns and asset prices:

        • Currency risk, country political risk, country cyclical risk, relative effective tax rates, relative interest rates/opportunity costs, historical investment pattern, and capital gains and losses.

        • Very difficult – and risky - to impute to services.


International Transactions and Alternative Measures

Source: BEA.


Potential Volatility Involved in Measuring Intangibles

Source: FRB Flow of Funds (L.102 and B.102) release March 9, 2006. Data based on nonfarm nonfinancial corporate business.

Note: A number of analysts attributed the large difference between equity values and the replacement value of plant and equipment to intangibles during the market run-up in the late 1990s.


Measuring Globalization

  • Pitfalls in (and techniques for) estimating cross-border services

    • Importance of detailed estimates

    • Uses of counter-party data

    • “Joint-products”

    • Estimating financial services

    • Globalization and incomplete reporting by large companies

    • The rise in direct transactions and small-firms in international trade


Measuring Globalization

  • Pitfalls in (and techniques for) estimating cross-border services (continued)

    • Travel and passenger surveys

    • Global competition and differential pricing


Measuring Globalization

  • MNC Operations Data (Foreign Affiliated Trade and Other Data) key in presenting baseline facts for offshoring:

    • US MNC’s employment, sales, spending in the U.S. vs. abroad.

    • US MNC’s overseas sales to local area vs. other regions, and the U.S.

    • U.S. MNC investments in large in growing markets vs. low wage countries.


Measuring Globalization

  • MNC Operations Data Issues:

    • Increasing use of holding companies

      • 1982 – Holding companies accounted for 9% of USDIA; by 2004 this share had risen to 34%

      • Increasing problems for industry and geographic data

        • Industry of parent vs. industry of subsidiary

        • BOP vs. Ultimate beneficial owner (other treatments)

      • Increasing incidence of inversions

    • Similar issues (to India) relating to bilateral data

    • Increasing importance of publicizing and explaining MNC data.


China Statistics Comparison

Source: UN, World Investment Report 2005.


Possible Causes of a Change in the Domestic (U.S.) Share of Employment by a U.S. MNC


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