Issues and challenges for Issues and challenges for measuring intra-firm trademeasuring intra-firm trade

Rainer Lanz and Sébastien MiroudotOECD Trade and Agriculture

Working Party on International Trade in Goods and Trade in Services Statistics6 October 2010

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Trade Committee reportsTrade Committee reportson trade and activities of MNEson 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)]

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Data used to analyse intra-firm tradeData 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?

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AMNE statistics vs. US goods trade statisticsAMNE 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

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Coverage of intra-firm trade according to inward Coverage of intra-firm trade according to inward AMNE statistics in the OECD AFA databaseAMNE statistics in the OECD AFA database

Canada Italy Japan Netherlands Poland Sweden U.S.Years 1991-1994 2005-2007 1991-2007 1997-2002 2004-2007 1990-2002 1977-2007Intra-firm exports yes yes yes yes yes yes yesIntra-firm imports no yes yes yes yes no yesNumber of partners for aggr. manufacturing

10 World only 62 64 61 65 13

Number of disaggregated goods industries (partners)

25 (-) 17 (-) 30 (9) 30 (12) none 31 (10) 28 (13)

Number of services industries

2 2 4 4 none 4 4

•Very few countries report data on intra-firm trade

•Partner and industry coverage is limited

•Trade in services is not covered

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Share of intra-firm and affiliate exports in total exportsShare of intra-firm and affiliate exports in total exportsfor 7 OECD economiesfor 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.

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Total US goods trade and share of intra-firm tradeTotal US goods trade and share of intra-firm trade(Bill. USD, 2002-2009)(Bill. USD, 2002-2009)

Source: US Census Bureau, Related Party Database

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Share of intra-firm exports in private services Share of intra-firm exports in private services exports for the USexports for the US

Source: US Bureau of Economic Analysis

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Estimating intra-firm trade using firm level data from the Estimating intra-firm trade using firm level data from the ORBIS dataset?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

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Motivation for FDI (and expected intra-firm trade)Motivation for FDI (and expected intra-firm trade)

Type of FDI Identification in the dataset Intra-firm trade

HorizontalThe 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)

Neither None of the previous connections. No

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Evidence from firm-level data (ORBIS)Evidence from firm-level data (ORBIS)

Number of subsidiaries Percent

Goods    

Horizontal 5 602 13,7%

Vertical 7 338 17,9%

Complex 1 769 4,3%

Neither/not identified 26 296 64,1%

Total 41 005 100,0%

Services    

Horizontal 8 815 9,3%

Vertical 18 350 19,4%

Complex 2 428 2,6%

Neither/not identified 65 081 68,7%

Total 94 674 100,0%

Intra-firm (Mil.USD) % of total trade    Low High Low High

Australia 4

397 9

187 3% 7%

Austria 51

011 59

850 38% 45%

Belgium 5

846 7

719 2% 2%

Canada 4

472 10

359 1% 3%

Chile

42

502 0% 1%

Czech Republic

516

518 1% 1%

Denmark 9

396 11

648 11% 14%

Finland 4

785 15

460 7% 22%

France 47

094 85

099 9% 16%

Germany 92

673 131

129 10% 14%

Greece

167

514 0% 1%

Hungary

89

89 0% 0%

Iceland

810

956 14% 16%

Ireland 3

830 18

273 5% 24%

Italy 9

816 25

951 2% 6%

Japan

371

514 0% 0%

Korea

916 2

505 0% 1%

Mexico

249 2

177 0% 1%

Netherlands 17

659 38

485 5% 12%

New Zealand -

1

702 0% 6%

Norway 7

736 9

751 12% 15%

Poland

529

530 0% 0%

Portugal 2

645 4

743 4% 7%

Spain 50

786 52

097 15% 16%

Sweden 20

099 26

846 16% 21%

Switzerland 43

127 57

554 30% 41%

Turkey

49

74 0% 0%

United Kingdom 64

082 199

509 11% 33%

United States 166

425 408

570 9% 21%

Total OECD members 690

975 1 267

819 8% 15%

‘Rough’ estimates

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Comparison with US BEA dataComparison with US BEA data

(Mill. USD) Low High (Mill. USD) Low HighOECD membersAustralia 2,198 1,845 3,235 Portugal 97 1,493 1,558 Austria 242 78 78 Slovak Republic Not disclosed 100 596 Belgium 2,295 3,939 36,395 Slovenia Not disclosed 9 9 Canada 78,702 7,860 45,414 Spain 658 15,711 19,776 Chile 329 1,677 1,682 Sweden 4,434 1,667 1,938 Czech Republic 219 1,290 1,818 Switzerland 3,811 1,940 2,950 Denmark 207 2,646 3,044 Turkey 76 - - Finland 345 172 172 United Kingdom 12,094 20,088 40,863 France 4,723 6,869 32,833 Germany 5,272 19,650 32,545 Other major economiesGreece 2 471 802 Argentina 653 641 1,311 Hungary Not disclosed 36 65 Brazil 2,027 9,232 12,818 Ireland 18,497 287 11,312 China 4,605 1,383 3,260 Italy 1,777 7,429 13,496 Estonia Not disclosed 5 5 Japan 1,402 85 298 India 415 151 496 Korea 2,225 1,271 2,927 Indonesia 192 - - Luxembourg Not disclosed - - Israel Not disclosed - - Mexico 38,173 4,150 21,327 Russian Federation 1 142 1,602 Netherlands 3,997 48,508 64,289 South Africa 362 1 65 New Zealand 59 87 116 Norway 434 75 304 Total 237,583 168,733 407,602 Poland 220 2,756 5,050

Country of the affiliate

Country of the affiliate

Goods shipped by affiliates to US parents (BEA)

Estimates fromORBIS

Goods shipped by affiliates to US parents (BEA)

Estimates fromORBIS

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Intra-firm trade: why is it relevant?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

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To conclude: a question for discussionTo 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