1. #StatsTradeEvent

2. The Changing Shape of Trade and Investment in the UK Jil Matheson National Statistician 24 th September 2013 #StatsTradeEvent

3. £100 m £100 £100 m £407bn goods £119bn services 9.5% 11.0% 7.5% UK – a key global trading nation 3.5% 6 th place #StatsTradeEvent Source: ONS Balance of Payments; UNCTAD Share of W rld Trade in 2012 Total value of UK trade in 2012 £1 trillion

4. 4 #StatsTradeEvent Source: ONS Value of GDP and Trade data; Value of Goods and Services imports and export Total trade to value of GDP ratio, UK

5. Source: Annual Business Survey Proportion of exporting and importing registered businesses, GB, 2011 #StatsTradeEvent

6. Data Collection #StatsTradeEvent

7. Trade and investment statistics users… Source : Google images #StatsTradeEvent

9. Inward FDI in the UK – (some of) what we know and what we would like to know By Richard Harris © Richard Harris

10. Evidence paper by Driffield et. al. (2013) to the Foresight Project on the Future of manufacturing in the UK

11. Motivation TFP is widely recognised as the key driver of long- run economic growth being foreign owned is associated with higher levels of TFP –Effects cover: Direct effects: FO plants are themselves more productive Indirect effects: there are (potential) spillovers to domestic plants from FO plants Overall the UK economy benefits from inward FDI even though there are issues of control and the destination of profits 11

12. Overview What do we know – Run through some statistics available mostly based on micro-level UK datasets covering FO shares of: GVA Gross output R&D – Look at some examples of the analysis that can be done covering: Links between FO and R&D/absorptive capacity Contribution of FO plants to overall UK productivity growth What would we like to know –Show how spillover estimates are obtained Note the incompleteness of our knowledge Outline the needs for more information (new statistics)

13. Source: ARD

15. Real GVA in top 32 SIC92 industries by foreign-ownership, 2009 (£m 2000 prices) Software consultancy and supply Other retail of new goods in specialised stores Telecommunications Legal, accounting, consultancy Miscellaneous business activities Post & courier services Manufacture of motor vehicles Wholesale of household goods Architectural & engineering & technical consultancy Wholesale of intermediate products Manufacture of refined petroleum products Retail in non-specialised stores Real estate Other wholesale Advertising Labour recruitment & personnel Source: ARD

16. Source: BERD matched into ARD

17. Source: Harris (2013) – based on CIS data

19. Source: Harris and Moffat (2013) – using ARD

20. Evidence on spillover benefits Does the ‘presence’ of IFDI increase the productivity of non-FDI plants? – First need to establish that generally IFDI plants have higher productivity – Then need to establish the ‘channels’ through which ‘spillovers’ can occur – Lastly need evidence on such spillovers Current based on ‘association’ – If high ‘presence’ of IFDI in same industry (upstream or downstream) and/or same locality is correlated with higher TFP in domestic plants – taken as evidence of spillovers Need direct evidence – to establish and better understand nature of spillovers

21. Distribution of plant-level labour productivity in 2005 Source: FAME

24. What we don’t know on spillovers Need evidence on linkages between FO and domestic plants in terms of: – actual sales/purchases This also requires understanding of ‘global’ value chain activities of IFDI firms (e.g. why are they located in UK?) – actual ‘knowledge’ linkages Information shared with other firms and sectors Cooperation undertaken Hiring of labour

25. Conclusions IFDI is very important to UK economy –Concentrated here on productivity side but also jobs (covered next) –It’s a large component of marketed output –Its more productive Directly and and almost certainly indirectly (through spillovers) But indirect effects are imprecisely measured and direct of causation is consequently unclear –Hence need more statistical information on linkages in order to understand and measure better spillover effects

26. Acknowledgement This work contains statistical data from ONS which is Crown copyright and reproduced with the permission of the controller of HMSO and Queen's Printer for Scotland. The use of these data does not imply the endorsement of the data owner or the Secure Data Service at the UK Data Archive in relation to the interpretation or analysis of the data. This work uses research datasets which may not exactly reproduce National Statistics aggregates

27. #StatsTradeEvent

44. 44 1 Presentation title - edit in the Master slide 1 The Changing Shape of Trade and Investment in the UK UKTI priorities and evidence needs Crispin Simon, Director Trade: UKTI 22 nd September 2013 With Thanks to Economists at HM Government FCO and UKTI

45. 45 1 Presentation title - edit in the Master slide 1

46. 46 1 Presentation title - edit in the Master slide 1 There is no such thing as bad weather, only unsuitable clothing Ranulph Fiennes

47. 47 1 Presentation title - edit in the Master slide 1 Capacity BuildingPassport to ExportAdvice for the new exporter Export VouchersFor Passport graduates Export ReviewsComms advice & mkt research resource 3G and MSB ProgrammesFor more experienced exporters Open 2 ExportWeb community for exporters Getting Out ThereWebinarsLow cost personal input Market Visit SupportGrant-supported country visits Trade Show Access ProgrammeGrant-supported trade show presence Missions to MarketsSector-focused country missions In MarketOMIS ResearchIntroductory service OMIS FacilityEmbassy facility use Business Opportunity SchemeE-mail alerts from FCO Posts High Value OpportunitiesAdditional resource, supply chain focus

48. 48 1 Presentation title - edit in the Master slide 1

49. 49 1 Presentation title - edit in the Master slide 1

50. 50 1 Presentation title - edit in the Master slide 1 Trade target is £1 trillion UK exports by 2020 Leverage points at firm level: More companies More companies being formed More companies surviving More companies exporting (100k by 2020) Exporting companies exporting more Gaining share in current markets Entering new markets Raising UK content of overseas sales

51. 51 1 Presentation title - edit in the Master slide 1 Trade target is £1 trillion UK exports by 2020 Leverage points at macro level: More UK Geographic Market Share More UK market share in mature geographic markets More UK market share in high growth geographic markets More growth where UK has high market share More UK Sector Market Share More UK market share in mature sectors More UK market share in high growth sectors More growth where UK has high sector share

52. 52 1 Presentation title - edit in the Master slide 1 UK share of key export markets in 2010 52  History continues to play a role in the pattern of UK trade.  The UK tends to capture a larger market share in its former colonies than other markets. Source: IMF, ONS and FCO Economics Unit Calculations

53. 53 1 Presentation title - edit in the Master slide 1 UK versus EU-3 – goods export performance 53  On average the UK captures about 2.5% of foreign goods markets, versus 3% for the EU-3.  The UK outperforms the EU-3 in the Gulf, but for many other emerging markets the EU-3 are ahead. In some cases, notably Russia, Brazil, Turkey and China, the EU-3 are significantly further ahead. Source: UNCTAD Statistics, ONS and FCO Economics Unit Calculations

54. 54 1 Presentation title - edit in the Master slide 1

55. 55 1 Presentation title - edit in the Master slide 1 UK versus EU-3 – services export performance 55  On average the UK captures around 6% of foreign services markets, versus about 3% for the EU-3.  The UK significantly outperforms the EU-3 benchmark in almost all markets. Notable exceptions are Morocco, Chile, Argentina, Mexico and Brazil. Source: UNCTAD Statistics, ONS and FCO Economics Unit Calculations

56. 56 1 Presentation title - edit in the Master slide 1 56 In pound terms, it is the largest economies that account for the biggest rise in import demand. The increase in Chinese import demand is especially large, dwarfing all other emerging markets. This reflects both China’s size and its growth potential. Increasing market share in these large markets will result in bigger gains for the UK, but may be more difficult to achieve because of greater competition. Source: IMF World Economic Outlook October 2012 and FCO Economics Unit Calculations Data refer to the expected increase in goods & services imports into a given market, expressed in nominal terms.

57. 57 1 Presentation title - edit in the Master slide 1 Meeting the £1Trillion Export Target 57  Given the weak global economic outlook, hitting the £1 trillion target will be difficult. Maintaining market share will not be enough. We need to gain market share.  Comparing the UK’s performance against our European competitors allows us to see where we might make up ground and offers a way to benchmark our performance.  Catching the EU-3 in the fastest growing emerging economies would represent a significant contribution to hitting the £1tn target. £1 Trillion Target 2010 UK Exports Gains from maintaining market share in all markets Gains from catching the EU-3 in the emerging powers Gains from catching the EU-3 in emerging Europe 500 800 300 400 100 200 0 600 700 900

58. 58 1 Presentation title - edit in the Master slide 1 Emerging Conclusions £1 Trillion Exports target looks less demanding than 100k New Exporters Market share gains will be required Greatest evidence need is more insight of the market conditions (size/share/customer needs) within the geographic/sector segments (eg China/automotive; Saudi-Arabia/professional services) where we must win

59. 59 1 Presentation title - edit in the Master slide 1

60. The Changing Face of Scottish Trade Jonathan Slow Scottish Development International Jonathan Slow Scottish Development International The Scottish Government

61. Summary Scottish Exports have grown But growth has not been steady Major sectoral change has take place Geographic composition has remained broadly similar The Global Connections Survey has assisted policy focus Scottish Exports have grown But growth has not been steady Major sectoral change has take place Geographic composition has remained broadly similar The Global Connections Survey has assisted policy focus The Scottish Government Source: The Scottish Government

62. The Global Connections Survey Annual voluntary business export survey Covers all sectors in Scotland Covered by National Statistics guidelines Provides estimates of sales to Rest of World and Rest of UK Provides destination information Annual voluntary business export survey Covers all sectors in Scotland Covered by National Statistics guidelines Provides estimates of sales to Rest of World and Rest of UK Provides destination information The Scottish Government Source: The Scottish Government

63. International Growth 2002-2011 The Scottish Government Source: GCS 2011

64. Sectoral Changes 2002-2011 The Scottish Government Source: GCS 2011

65. Top 5 Sectors 2002-2011 The Scottish Government Source: GCS 2011 2002 2011

66. Market Changes 2002-2011 The Scottish Government Source: GCS 2011 2002 2011

67. Evidence Informing Policy Used in developing sector strategies Understanding barriers to doing more international activity Assessment of company requirements Used in developing market strategies Driving an approach to increased international engagement Used in developing sector strategies Understanding barriers to doing more international activity Assessment of company requirements Used in developing market strategies Driving an approach to increased international engagement The Scottish Government Source: GCS 2011

69. Measuring Trade in Value Added, and Beyond The Changing Shape of Trade and Investment in the UK London, September 2013 nadim.ahmad@oecd.org

70. Background – Global Production today A world of increasing international fragmentation of production – Explosion of trade in intermediates as firms specialise in stages (tasks) of production Gross trade flows increasingly embody components (and so value) created elsewhere 70

71. 71 A simple example – the iPod Distribution of the value added 299 US$ –75$ profit to US (Apple) –73$ whls/retail US (Apple) The Apple iPod = 299$ of Chinese ‘exports’ to US http://blogs.computerworld.com/node/5724 –75$ to Japan (Toshiba) –60$ 400 parts from Asia –15$ 16 parts from the US – 2$ assembly by China

72. A slightly more complicated example – the Dreamliner 72

73. So? Gross trade statistics increasingly ‘multiple count’ flows in intermediates as the production process develops over several countries… 73

74. ……… …meaning that gross trade statistics may create ‘misleading perceptions’ and imperfect policies 74

75. For example…. Where are our export markets? Which sectors create most value and jobs? Does protectionism work? Is it counter- productive – Are there costs on importers of intermediates, particularly when they are significant exporters. – What about those firms further upstream providing inputs to the imports? How should we interpret bilateral trade balances? 75

76. How can we respond? By measuring the value that is added by individual firms in the production process 76

77. How do we measure TiVA? Using a global IO table 77

78. What are we doing? Using database on national IO tables to create a global IO table. OECD: IO tables for 58 economies and 37 industries for 1995/2000/2005/2008,2009, (more than 95% of world GDP) Bilateral trade data for the flows; Collaborating closely with: – other institutions/initiatives: USITC, IDE-JETRO, WIOD; MOFCOM and forging closer links with others including Eurostat. Launched OECD-WTO TiVA database in January 2013 78

79. A database on OECD.Stat With a number of indicators…………. – Decompositions of gross exports by industries into their domestic and foreign content, with the domestic content split into three (direct, indirect and re-imported) components and the foreign content broken down by source country; – The services content of gross exports by exporting industry (broken down by foreign/domestic origin); – Bilateral trade balances based on flows of value-added embodied in domestic final demand; – Intermediate imports embodied in exports, as a per cent of total intermediate imports. 79

80. What does the first release tell us? Domestic content of exports 80

81. Exports require imports foreign content of exports - UK 81

82. Imports and competitiveness Per cent of total sector growth in value-added driven by exports 1995-2009 82 Import content growing Import content decreasing

83. Exports and Imports (i) 83

84. Exports and Imports (ii) 84

85. With hubs playing an important role 85

86. And a significant share of total intermediate imports is used in exports - UK 86

87. Particularly in sectors with high fragmentation 87

88. VA figures reveal significant and increasing export dependencies 88 Around and over 2/3rds in many sectors And over half for all manufacturing

89. Services matter Services Value-Added: % of exports, 2009 89

90. And have a high content in goods - UK 90

91. Design, R&D, software etc becoming more important - Services content of transport equipment 91

92. Trade patterns change - UK 92

93. Significantly for some countries - China 93

94. And throughout Factory Asia 94 Exports to China: Gross and Value-added terms, % of total

95. Who trades with who? Japan’s trade balances 95

96. In general – the more distant the countries the more likely that gross trade statistics underestimate the relationship Change in trade shares based on Value-Added in 96 BrazilUnited States

97. 97

98. 98 Whilst there are limitations to the widespread calculation of trade in value-added data, the OECD-WTO initiative is to be applauded for providing a more revealing look into global trade and integration and for paving the way for further development in this area.

99. But it is important to stress That this is a work in progress and that results are estimates But they are robust enough to already begin to highlight –the need for policies to account for GVCs But perhaps more importantly, they highlight –the importance of capacity building and better statistics Improving data quality is essential –Coherent estimates of trade in goods and services –A new approach to Supply-Use Tables? With a focus on stages and trade rather than industries, per se, to better reflect firm heterogeneity (particularly MNEs). Import/export intensities, factoryless firms, processors, ownership 99

100. What can be done now? Improved GROSS trade data Import flow matrices Better bilateral trade statistics (integrated with SU tables) and globally consistent Intelligent confidentiality rules (suppress 6 digit not 2 digit HS) Re-export data Second hand goods, scrap and waste. SERVICES –EBOPS 2012. 100

101. Examples of current inconsistencies in bilateral trade statistics (Services 2009) 101

102. What else can be done…..now? Capitalise on existing data to create new indicators on exporting and importing firms Beyond TEC: Linking trade registers, business registers and SBS OECD Workshop on linking business and trade statistics: 25-26 October 2012 Exploring feasibility of creating new indicators based on export (and import) intensities, ownership and size. And also provides stepping stone for trade in icnome related to investment Changes to classification systems to better reflect globalisation: –Factoryless producers (UNECE Task Force on Global Production) 102

103. Extensions Trade in jobs and skills –But requires Coherent employment and value-added data –Also important for productivity estimates And significant improvement in skills data (and occupations) Jobs embodied in foreign final demand - % of total 103

104. Extensions Trade in Income related to Investment: Ownership matters: –Because value added does not always stick (compensation for use of knowledge based assets – where increasingly registration is determined by tax environment) –And because flows for use of IPPs are often recorded as property income and not trade in services. –30% of total business sector VA in 2009 in the UK generated by foreign owned firms, 15% of GDP. Accounting for the underlying flows could further change trade relationships, even though differences between GNI and GDP are small. –In Japan for example Primary income flows (GNI minus GDP) were equivalent to about one-quarter of total TiVA flows. Need better FATS data, particularly on value-added and employment. –MSITS 2010 Compilers Guide 104

105. Summary – What’s needed New thinking on SU tables Better gross trade data Links to microdata Income, Ownership and FATS 105

106. Further information www.oecd.org/trade/valueadded Video: http://www.youtube.com/watch?feature=player _embedded&v=RZKX-0SK41UVideo: http://www.youtube.com/watch?feature=player _embedded&v=RZKX-0SK41U OECD Workshop on Measuring TiVA 5-6 December 2013OECD Workshop on Measuring TiVA 5-6 December 2013 106

108. The Changing Nature of the UK’s Involvement in Global Value Chains prepared for the Business Statistics User Event: The Changing Nature of Trade and Investment in the UK 24 th September 2013 Dr. Michael Gasiorek CARIS, University of Sussex & InterAnalysis m.gasiorek@sussex.ac.ukm.gasiorek@sussex.ac.uk www.tradesift.com

109. 1.109 What are the issues.... The last 10-15 years have seen the increasing integration of firms in value chains or supply chains. Firms increasingly purchase and sell goods and services as intermediate inputs internationally. This process has become known as the fragmentation of the supply chain. Conventional wisdom suggests this has enabled a finer degree of “within industry” specialisation, leading to increased productivity & competitiveness. Also resulted in greater inter-dependance between countries CARIS

110. 1.110 What are the issues.... Looking at gross exports may be misleading. Need to be able to identify the value added in those exports. To do so, need to identify the intermediates that are used by each industry and where the intermediates come from: domestic v imported  input-output tables. Two recent data-sets (TiVA & WIOD) have been released which provide this information and allow these issues to be explored: Important for policy and for understanding the changes that have taken place in the UK economy CARIS

111. 1.111 TiVA and WIOD - overview TiVA (trade in value added) – Produced by the OECD – Indicators for 18 sectors – manufacturing and services – 57 economies (OECD + others) – 1995, 2000, 2005, 2008, 2009 WIOD (w orld Input Output Database) – Produced by – Provides detailed (input-output) tables for 36 sectors – covers 27 EU countries + 13 other countries – period 1995-2009. – Includes information on the employment by skill type (high medium & low) embodied in trade and production CARIS

112. 1.112 Every picture tells a story…. CARIS

113. 1.113 Domestic value added in gross exports Chart shows that for the UK, the share of domestic VA in exports has gone up (from 79% to 83%) Interestingly for the others we see the reverse trend – China: 88%  67% – India:90%  78% – Germany:81%  73% This would appear to suggest that the UK may be engaging less in international value chains, while competitors are engaging more. Important to understand this and to consider the extent to which this “matters”. CARIS

114. 1.114 Possible explanations 1.Within industries the UK is producing more of the value chain (MVC) - supplying more intermediates 2.Within industries UK is now producing a higher value part of the value chain eg. moving up the value chain (UVC) 3.No compositional changes but within industries the price of UK intermediates relative to the price of the final goods it exports has gone up 4.Changes in the structure of the UK economy  – Decline of sectors with a low domestic value chain share – growth of sectors with a high domestic value chain share CARIS

115. 1.115 Possible explanations (1) and (2) suggest that the UK is becoming more competitive in the intermediates it supplies for use in the final goods that the UK then exports (3) suggests that the UK is becoming less competitive in the intermediates it supplies Assessing competitiveness in the intermediates is tricky – and cannot be done with TiVA data directly TiVA gives revealed comparative advantage for 9 manufacturing sectors This does not identify the intermediates used in those sectors, however if the UK was more competitive in the intermediates might also expect this to be the case for the final goods too. CARIS

116. 1.116 Ag, for fish Food, Bev, & Tob Wood, Paper, prntng ChemBasic metals Machry. Elect & Opt. Transp Equip Manuf nes

117. 1.117 Possible explanations Each of (1), (2) and (3)  Producing more of the value chain (MVC)  Producing higher up the value chain (UVC)  Increasing price of UK intermediates...imply changes taking place within industries, so we would expect to see a higher share of domestic value added within industries CARIS

118. 1.118

119. 1.119 Wood, Paper, prntng Chem Transp Equip Ag, for fish

120. 1.120 For Chemicals and Transport Equip: RCA , domestic VAsh  For these competitiveness may be related to more international fragmentation as opposed to less

121. 1.121 Ag,For. & Fishg, and Wood, Paper & Printing: RCA , dom Vash  Therefore may be consistent with explanations 1,2 or 3

122. 1.122 Overall There are 10 industries where the UK value added share has gone up, – five are service industries accounting for 21% of the UK’s exports. – five of these in manufacturing comprising 28% of the UK’s exports in 2009; – No clear pattern between competitiveness and domestic value added share – but this is at a very aggregate level CARIS

123. 1.123 What do the graphs suggest? 1.There are four sectors where the UK’s revealed comparative advantage has gone up: – food, beverages and tobacco; – wood, paper, printing and publishing; – Chemicals and non-metallic mineral products – Transport equipment 2.In only two of the sectors which saw a rise in the UK’s domestic share of value added, is there evidence of the RCA rising. 3.Note also little difference at this aggregate level between the RCA using gross exports and value added exports. This is unsurprising. CARIS

124. 1.124 What about inter-sectoral compositional shifts? CARIS (Note: Excluding industries with a 2009 share less than 2.5%)

125. 1.125 What about inter-sectoral compositional shifts? CARIS (Note: Excluding industries with a 2009 share less than 2.5%)

126. 1.126 What about inter-sectoral compositional shifts? CARIS (Note: Excluding industries with a 2009 share less than 2.5%)

127. 1.127 Some significant changes here Indicative of substantial compositional shifts Decline in the share of all manufacturing sectors. growth in the importance of “financial intermediation” (65-67) from 4.9% of value added exports to 18% Growth in “real estate, renting and business activities” (70-74) from 8.7% to 16.7%. CARIS

128. 1.128 So what is the story? Post 1995 restructuring of the economy towards financial & business services. These sectors have a higher value added share in exports, so this is driving the aggregate results Decline in manufacturing in the UK, though not necessarily by UK firms. Production and exports shifted to 3 rd countries. In contrast (possibly) Germany shifted source of intermediates to third countries. China and India changes driven more by the opening up of their economies May have been exacerbated by overvalued exchange rate. On the one hand this makes imported intermediates cheaper (encouraging their use; on the other hand makes exports more expensive. Net effect unclear However, hard to see in detail what is happening to trade CARIS

129. 1.129 For that you need more detailed trade data... Out of 4696 goods exported in 2011, the top 50 UK HS 6- digit exports account for just under 50%. Those 50 industries accounted for 36% of UK exports in 2001 Of those 50 industries, nearly 25% saw their revealed comparative advantage over 2001-2011 decline. These industries accounted for 18% of UK exports in 2001, and 14.6% in 2011. Out of the 50 industries the 10 which saw their RCA rise the most, saw their share of exports over the period rise from just under 2% to 6.6%. CARIS

130. Another picture, another story? 1.130