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Issues and challenges for measuring intra-firm trade Rainer Lanz and Sébastien Miroudot OECD Trade and Agriculture Working Party on International Trade.

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Presentation on theme: "Issues and challenges for measuring intra-firm trade Rainer Lanz and Sébastien Miroudot OECD Trade and Agriculture Working Party on International Trade."— Presentation transcript:

1 Issues and challenges for measuring intra-firm trade Rainer Lanz and Sébastien Miroudot OECD Trade and Agriculture Working Party on International Trade in Goods and Trade in Services Statistics 6 October 2010

2 OECD Trade & Agriculture 2 Trade Committee reports on trade and activities of MNEs 1.Vertical trade, trade costs and FDI [TAD/TC/WP(2008)23/FINAL] 2.Trade in intermediate goods and services [TAD/TC/WP(2009)1/FINAL] 3.Intra-firm trade: a work in progress [TAD/TC/WP(2010)27] 4.Trade in tasks: a scoping paper [TAD/TC/WP(2010)]

3 OECD Trade & Agriculture 3 Data used to analyse intra-firm trade Activities of Multinational Enterprises (AMNE) Statistics –OECD Activities of Foreign Affiliates (AFA) Database – 7 countries Firm level data –ORBIS Dataset (Bureau Van Dijk) – 43 countries Goods Trade Statistics from Customs Authorities –Related party database from the US Census Bureau Services Trade Statistics from Balance of Payments –US cross-border trade Do other countries collect intra-firm trade data in their goods or services statistics?

4 OECD Trade & Agriculture 4 AMNE statistics vs. US goods trade statistics Ownership thresholds –AMNE statistics: 50% –US goods trade statistics: 10% for exports and 6% for imports Identification of the parent and affiliate firm –Inward AMNE: Trade of domestic affiliates (with foreign parents) –Outward AMNE: Trade of domestic parents (with foreign affiliates) –US goods trade statistics do not identify whether the US firm or the foreign firm is the parent Industry versus product classification Coverage: survey versus entire population

5 OECD Trade & Agriculture 5 Coverage of intra-firm trade according to inward AMNE statistics in the OECD AFA database Very few countries report data on intra-firm trade Partner and industry coverage is limited Trade in services is not covered

6 OECD Trade & Agriculture 6 Share of intra-firm and affiliate exports in total exports for 7 OECD economies Notes: Data are for the year 2007 for the US, Japan, Italy and Poland; 2006 for Finland; 2002 for Sweden and the Netherlands; 1994 for Canada. Data for Poland refer to the manufacturing sector only. Source: OECD AFA Database, Statistics Finland.

7 OECD Trade & Agriculture 7 Total US goods trade and share of intra-firm trade (Bill. USD, 2002-2009) Source: US Census Bureau, Related Party Database

8 OECD Trade & Agriculture 8 Share of intra-firm exports in private services exports for the US Source: US Bureau of Economic Analysis

9 OECD Trade & Agriculture 9 Estimating intra-firm trade using firm level data from the ORBIS dataset? Methodology follows Alfaro and Charlton (2009) Idea: Intra-firm trade occurs in the case of vertical FDI, i.e. the foreign affiliate produces an input for the parent 1. Identify foreign affiliates and their parents in ORBIS –Parent company = global ultimate owner (>50% of equity along the ownership chain) 2. Categorise parent-affiliate linkages as horizontal, vertical or complex FDI –Compare 6-digit NAICS industry codes of parent and affiliate –Use input-linkages from detailed US input-output table to determine vertical relationship 3. Use sales of vertical affiliates as estimate for intra-firm trade between the affiliate and the parent

10 OECD Trade & Agriculture 10 Motivation for FDI (and expected intra-firm trade) Type of FDIIdentification in the datasetIntra-firm trade Horizontal The foreign-owned subsidiary and the parent company share at least one identical 6-digit NAICS code. No Vertical The foreign-owned subsidiary has at least one 6-digit NAICS code which is an input for the industry of the parent company (according to the input-output matrix). Additionally, there is no domestic ultimate owner with a vertical link. Yes (exports from the subsidiary to the parent company) Complex There is both a horizontal and a vertical link (at least one identical 6-digit NAICS code and one that corresponds to an upstream industry). Partly, but cannot be measured (ignored) NeitherNone of the previous connections.No

11 OECD Trade & Agriculture 11 Evidence from firm-level data (ORBIS) Number of subsidiaries Percent Goods Horizontal5 60213,7% Vertical7 33817,9% Complex1 7694,3% Neither/not identified26 29664,1% Total41 005100,0% Services Horizontal8 8159,3% Vertical18 35019,4% Complex2 4282,6% Neither/not identified65 08168,7% Total94 674100,0% Intra-firm (Mil.USD)% of total trade LowHighLowHigh Australia 4 397 9 1873%7% Austria 51 011 59 85038%45% Belgium 5 846 7 7192% Canada 4 472 10 3591%3% Chile 42 5020%1% Czech Republic 516 5181% Denmark 9 396 11 64811%14% Finland 4 785 15 4607%22% France 47 094 85 0999%16% Germany 92 673 131 12910%14% Greece 167 5140%1% Hungary 89 0% Iceland 810 95614%16% Ireland 3 830 18 2735%24% Italy 9 816 25 9512%6% Japan 371 5140% Korea 916 2 5050%1% Mexico 249 2 1770%1% Netherlands 17 659 38 4855%12% New Zealand - 1 7020%6% Norway 7 736 9 75112%15% Poland 529 5300% Portugal 2 645 4 7434%7% Spain 50 786 52 09715%16% Sweden 20 099 26 84616%21% Switzerland 43 127 57 55430%41% Turkey 49 740% United Kingdom 64 082 199 50911%33% United States 166 425 408 5709%21% Total OECD members 690 975 1 267 8198%15% ‘Rough’ estimates

12 OECD Trade & Agriculture 12 Comparison with US BEA data

13 OECD Trade & Agriculture 13 Intra-firm trade: why is it relevant? –Protectionism in the context of intra-firm trade: “Beggar Thy Neighbour is Beggar Thyself” –Impact on the political economy of trade policy: Optimal tariff lower when there is trade with domestically-owned affiliates –New issue in trade policy making: the buyer-supplier relationship –Impact on growth: additional productivity gains with the fragmentation of production and vertical specialisation –Impact on labour markets: relocation of production and shift in value-added –Impact on tax policy: transfer pricing –Macro-economic impact: role of MNEs in the transmission of macro-economic shocks

14 OECD Trade & Agriculture 14 To conclude: a question for discussion Analysing intra-firm trade helps to understand operations of MNEs and is of great importance to policymakers Only few data are available What are the prospects for more data on intra-firm trade and where could these data come from? –AMNE statistics –Goods trade statistics (customs) –Balance of payments –Micro-data

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