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Handbook on Economic Globalisation Indicators

Handbook on Economic Globalisation Indicators. Thomas Hatzichronoglou. CHAPTER 1. THE CONCEPT OF ECONOMIC GLOBALISATION AND ITS MEASUREMENT CHAPTER 2. FOREIGN DIRECT INVESTMENT CHAPTER 3. THE ECONOMIC ACTIVITY OF MULTINATIONALS CHAPTER 4. THE INTERNATIONALISATION OF TECHNOLOGY

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Handbook on Economic Globalisation Indicators

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  1. Handbook on Economic Globalisation Indicators Thomas Hatzichronoglou

  2. CHAPTER 1. THE CONCEPT OF ECONOMIC GLOBALISATION AND ITS MEASUREMENT CHAPTER 2. FOREIGN DIRECT INVESTMENT CHAPTER 3. THE ECONOMIC ACTIVITY OF MULTINATIONALS CHAPTER 4. THE INTERNATIONALISATION OF TECHNOLOGY CHAPTER 5. ASPECTS OF TRADE GLOBALISATION

  3. DRIVING FORCES CONTRIBUTED TO THE GLOBALISATION PROCESS 1. Liberalisation of capital movements 2. Further opening of markets to trade and investment 3. Development of information and communication technologies

  4. Important features of globalisation General aspects • Reduction of barriers to trade • The high integration of financial markets is increasingly impacting on the conduct of industrial restructuring • Foreign direct investment is becoming a crucial factor in the globalisation process • Multinational firms constitute one of the main vectors of economic internationalisation • Fragmentation of production at the international level • New forms of international competition • Compression of time and distance in international transactions • Multiplication of regional free-trade agreements

  5. Important features of globalisation (continued) Microeconomic aspects • Global strategies adopted by firms • Global conception of markets • Multi-regional integration strategy • Changes in external organisation of multinational firms • multiplication of mergers and acquisitions • of strategic alliances • of offshoring and international subcontracting • worldwide network structure • Changes in internal organisation • Outsourcing • Just-in-time flows • Individualisation of tasks and pay • Need for greater transparency • Corporate governance regulations

  6. Trends in international trade and investment componentsOECD, 1990 = 100, at current prices

  7. Main components of the financial account as a percentage of GDP, OECDGross basis, average 1999-2003 Main components of the current account as a percentage of GDP, OECDGross basis, average 1999-2003

  8. FDI inflows to OECD countries as a percentage of GDPAverage 2000-2003 FDI outflows from OECD countries as a percentage of GDPAverage 2000-2003

  9. Inward FDI position of OECD countries as a percentage of GDP2005 Outward FDI position of OECD countries as a percentage of GDP2005

  10. Inward cross-border mergers and acquisitions to G7 countries, 1995-2004 Outward cross-border mergers and acquisitions by G7 countries, 1995-2004

  11. Inward cross-border mergers and acquisitions to OECD countries Average 2000-2004 Outward cross-border mergers and acquisitions by OECD countriesAverage 2000-2004

  12. THE ECONOMIC ACTIVITY OF MULTINATIONALS The concepts of influence and control • The basic criterion used to determine whether an investment is a direct investment is its capacity to exert “influence” on company management. • The notion of influence is reflected, in statistical terms, in the holding of more than 10% of the ordinary shares or voting rights, while any investment below 10% is considered to be portfolio investment. • Concerning data on the activities of multinational enterprises, the notion of influence is not sufficient to allow data to be collected in a coherent and operational manner, whence the need to resort to the notion of “control”.

  13. Definition of foreign-controlled affiliates • An affiliate is considered to be foreign-controlled if the majority of ordinary shares or voting rights (over 50% of the capital) are held by a single foreign (non-resident) investor or else by a group of foreign investors acting in concert, such as the members of the same family or certain enterprises and their affiliates. • More generally, the notion of control means the ability to appoint a majority of the directors empowered to manage the enterprise, direct its activities and determine its strategy. • In some cases, control may be exercised by a foreign investor who does not own the majority of the shares with voting rights, in particular if the other shareholders are highly dispersed. In that case, national authorities must verify that the shareholder in question really exercises control and manages the enterprise. • Control may be exercised either directly or indirectly. In practice, an enterprise may indirectly control another through a third enterprise, even if it does not directly hold the majority of shares with voting rights. For further details, see “OECD Handbook of Economic Globalisation Indicators”, chapter 3, section 3.3.2.

  14. 60% 90% Y X Z Country B Country A 90% 80% V W Compiling country C Example of indirect control Indirect control in inward perspective Indirect control in outward perspective

  15. Definition of the geographical origin of foreign-controlled affiliates • In line with the recommendations of the OECD Handbook on Economic Globalisation Indicators, the country of origin of a foreign investment is not the country which invests directly, but the country to which the unit of ultimate control of the investment belongs. • An investor (company or individual) is considered to be the investor exercising ultimate control over an investment if it is at the head of a chain of companies and directly or indirectly controls all the companies in the chain, without itself being controlled by any other enterprise or any other investor.

  16. Definition of parent company • Inward investment • In a compiling country, the parent company of a foreign-controlled affiliate is the first foreign investor outside the borders of the country in question which exercises direct or indirect control over that affiliate. Consequently, in many cases, the parent company may be a company other than the unit of ultimate control. • Outward investment • From the viewpoint of the compiling country, the parent company of an affiliate controlled by residents of that country and located abroad is the consolidated enterprise (group of enterprises) which comprises the domestic enterprise which invests abroad and the domestic firms which it controls directly or indirectly inside the compiling country. • Thus expenditure on R&D by parent companies in the United States include all R&D laboratories which are directly or indirectly controlled by the headquarters of the group to which they belong. For further details, see also OECD Handbook on Economic Globalisation Indicators, Paris, 2005.

  17. Country 5 Country 3 90% E B C 30% 80% 40% Country 3 70% 70% A A 60% 80% C D B F Compiling country 1 Compiling country 1 Country 2 Country 4 Country 2 Country 6 Parent company under foreign control Inward investment: identifying the parent company and the parent group abroad

  18. Defining an entreprise group An enterprise group (again according to Council Regulation EEC No. 696/93) is an “association of enterprises bound together by legal and/or financial links. A group of enterprises can have more than one decision-making centre, especially for policy on production, sales and profits. It may centralise certain aspects of financial management and taxation”. Its activities may be in the industrial, service or banking sectors, and sometimes concurrently in two or all three (conglomerates). It may be located within a given country (in the case of a domestic group) or, as is more commonly the case, in several countries (in the case of a multinational group). There are two types of enterprise groups associated with outward investment that have to be considered: • The first is a set of enterprises and establishments in which a parent company owns a majority interest and exercises direct or indirect control. All the enterprises and their parent company are located in the same country. This is in fact an enterprise whose accounts are consolidated. • The second form of “enterprise group” or multinational group, extends beyond a single country and also encompasses directly or indirectly controlled affiliates in different countries.

  19. Example of a multinational

  20. Foreign-controlled affiliates’ share of manufacturing turnover and employment, 2004

  21. Number of employees of affiliates under foreign control in the manufacturing sectorChange between 1990 and 2001 in thousands

  22. Foreign-controlled affiliates' share of manufacturing value added, 2001

  23. Compensation per employee of affiliates under foreign control in the manufacturing sectorTotal manufacturing firms = 100

  24. Parent companies' share in manufacturing employment in selected OECD member countries, 2001

  25. THE INTERNATIONALISATION OF TECHNOLOGY 1. The internationalisation of industrial R&D 2. Technology receipts and payments 3. Trade in high-technology products

  26. The internationalisation of industrial R&D A. Setting up R&D laboratories abroad by investing countries (outward investment) B. Establishment of R&D activities in the host country by foreign-controlled affiliates (inward investment) C. Financing of R&D from abroad or destined for abroad

  27. Share of affiliates under foreign control in total business sector R&D expenditures, 2004

  28. Breakdown by country of growth in R&D expenditure by affiliates under foreign control between 1995 and 2003 Billions of PPP dollars

  29. Financing of BERD by abroad and share of R&D under foreign controlAvererage of the 3 latest years (2001-04)

  30. Growth of the main R&D sectors in the OECD area

  31. Share of R&D under foreign control by industrial sector, total OECD, 2001

  32. R&D expenditure of multinationals under European control at the world level, 2005 Billion USD Source: 2006 DTI R&D Scoreboard.

  33. Business sector R&D expenditure by affiliates abroad as a percentage of domestic R&D expenditure in selected OECD countries

  34. Main categories of technology balance of payments 1. Technology transfers: • Patents • Unpatented inventions • Licences (linked to patents) • Know-how 2. Transfers of designs (sales, licences, franchises), trademarks and patterns 3. Provision of technical services, comprising: • Technical and engineering studies (project design and implementation) • Technical assistance 4. Provision of industrial R&D (performed abroad or financed from abroad)

  35. Technology balance of payments (receipts - payments) as a percentage of GDP, 2005

  36. Aspects of trade globalisation • Input-output based indicators • Trade involving MNEs • Intra-firm trade • Trade in intermediate goods • Intra-regional and extra-regional trade • Intra-industry trade • Calculating trade balances based on capital ownership • Measuring international subcontracting

  37. Import content of exports of manufactured goods

  38. Export and import propensity of affiliates under foreign control in the manufacturing sector, 2004 Export and import propensity of affiliates under foreign control in the services sector, 2001

  39. Share of intra-firm imports in total imports of affiliates under foreign control Share of intra-firm exports in total exports of affiliates under foreign control

  40. Trade balance of the US manufacturing sector Trade balance of the US total economy

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