Analytical Needs and Services Trade Data

1. Analytical Needs and Services Trade Data Rainer Lanz OECD Trade and Agriculture Directorate Measuring and Enhancing Services Trade Data and Information Conference Washington, D.C., September 14, 2010

2. Overview • What is Services Trade? • Example of an Analysis: Calculation of Trade Costs using the Gravity Model • International Trade in Services Statistics • Trade in Intermediate Services • Activities of Multinational Enterprises (AMNE) • Conclusions

3. 1. What is Services Trade? • The WTO General Agreement of Trade in Services (GATS) defines four modes of supply: • Mode 1 – cross-border: “from the territory of one Member into the territory of any other Member” • Mode 2 – consumption abroad: “in the territory of one Member to the service consumer of any other Member” • Mode 3 – commercial presence: “by a service supplier of one Member, through commercial presence in the territory of any other Member” • Mode 4 – movement of natural persons: “by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member”

4. 2. Gravity Model • The work-horse model in empirical trade analysis • Anderson and van Wincoop (2003, AER): • What determines trade Xij between countries i and j (at the sector level)? • Market sizes Yi and Yj • Trade cost tij(transport costs, cultural barriers, regulatory barriers) • Bilateral services trade data by sector required!

5. 2. An Application: Calculating Trade Costs Re-arranging the gravity model allows to calculate bilateral trade costs (Jacks, Meissner and Novy, 2010, AER): Trade costs are calculated as the geometric average of bilateral trade costs for exports from country i to country j and from country j to country i, expressed relative to domestic trade costs in each country. • Data required: bilateral trade and domestic trade, i.e. domestically sold output

6. 2. World Trade Costs Indices, 1995-2007 (1995=100) Source: Miroudot, Sauvage and Shepherd (2010)

7. 2. Trade costs indices for selected services industries Source: Miroudot, Sauvage and Shepherd (2010)

8. 3. International Services Trade Statistics (BoP) • WTO GATS: Mode 1 – cross-border trade (and to some extent Modes 2 and 4) • OECD Trade in Services by Partner Country (TiSP) database • Covers all 32 OECD countries as reporters, 280 partner countries (regions) and 91 services sectors • Follows the Extended Balance of Payments Services (EBOPS) classification which is the international standard • Data issues • Bilateral coverage is limited • Distinguishing between zero and missing trade is difficult • The share of trade volume allocated to partner countries is small • Confidentiality issues

9. 3.i. Number of Partner Countries for Exports in 2007 Bilateral coverage is limited, especially for disaggregated EBOPS categories

10. 3.ii. Number of Partner Countries with “0” Exports in 2007 Countries vary strongly in the reporting of “0”s; when is data missing, when “0”?

11. 3. iii. Share (%) of Exports allocated to Partners Countries in 2007 For disaggregated EBOPS categories, only a small share of exports can be allocated to partner countries

12. 4. Trade in Intermediate Services • Important for the analysis of the international fragmentation of production, i.e. global value chains • The UN Broad Economic Categories (BEC) classification allows identifying trade in intermediate goods • No similar classification exists for services trade • Standard input-output tables contain information on imported services inputs but not at the bilateral level • Estimation of bilateral trade in intermediate services by Miroudot, Lanz and Ragoussis (2009) • International input-output tables • IDE-JETRO (Institute of Developing Economies) • WIOD Project (World Input-Output Database)

13. 5. Activities of Multinational Enterprises • WTO GATS: Mode 3 – Commercial Presence • Surveys on the Activities of Multinational Enterprises (AMNE) • Inward statistics: Domestic sales of affiliates of foreign parent companies • Outward statistics: Sales abroad of affiliates of domestic parent companies • OECD Activities of Foreign Affiliates (AFA) Database • Data coverage is limited • New EU Regulation (No. 716/2007) will lead to an increase of data for EU countries

14. 5. Number of Partners Countries for Sales of Affiliates in 2005 i) Only few and aggregate services sectors covered ii) Few countries collect data iii) Information on partner countries is limited

15. 5. Activities of Multinational Enterprises • Using firm-level datasets to capture the importance of commercial presence in services and global value chains, e.g. ORBIS database from Bureau van Dijk • Combining ownership information from international firm level data with vertical linkages from input-output tables allows distinguishing affiliates by type • Distribution of affiliates in ORBIS according to the type of FDI (percentage, 2006) Source: Lanz and Miroudot, OECD (2010)

16. 6. Conclusions • Need for bilateral services trade data at the sector (product) level following EBOPS to facilitate international comparisons • Limited bilateral by sector coverage for international trade statistics and in particular for sales of foreign affiliates • New EU regulation likely to increase data on foreign affiliate sales for EU countries • Increasing trend to use firm level data to analyse global value chains and to understand how firms of different productivity levels are involved in trade

17. Thank you for your attention! www.oecd.org/trade rainer.lanz@oecd.org