International trade, investment and employment as indicators of economic globalisation

Data extracted in November 2015. Most recent data: Further Eurostat information, Main tables and Database. Planned article update: September 2016.

Authors: Martin Luppes and Linda Rozendaal (CBS - Statistics Netherlands) and Pekka Alajääskö, Simon Bley and Anton Roodhuijzen (Eurostat, Structural business statistics and global value chains)

This article describes the construction of a set of European Union (EU) economic globalisation indicators, as part of the ESSnet project on global value chains. It presents results for the most important indicators, illustrating the type of information which could be used to track the different aspects of globalisation.

The article also explains at some length the methodological issues of developing globalisation indicators and presents detailed information about the data sources and data breakdowns available. Finally, it sketches the background to the project and the reasons for developing this new set of indicators, putting the project in the context of other work done in this area.

Figure 1: EU-28 imports and exports in percentage of GDP by year, 2004-2014
Source: Eurostat
Figure 2: Imports and exports in percentage of GDP by country, 2014
Source: Eurostat
Figure 3: Export to import ratio by country, 2014
Source: Eurostat
Figure 4: Inward and outward foreign direct investment stocks relative to the rest of the world as a percentage of GDP, EU-27, 2004–12
Source: Eurostat
Figure 5: Inward and outward foreign direct investment by Member State, in percentage of GDP, end of 2012
Source: Eurostat
Figure 6: Employment shares of enterprises controlled from outside the EU-28 in total EU employment by year, 2008-2012
Source: Eurostat
Figure 7: Employment shares of foreign controlled enterprises (world except reporting country) in total domestic employment by country, 2012
Source: Eurostat

Main statistical findings

This section presents statistical findings on three important aspects of economic globalisation: international trade, foreign direct investment (FDI) and employment. The information displayed has been selected for illustrative purposes only, because it is not the intention of this article to analyse these three aspects in detail. An overview of all main indicators can be found on the dedicated section for economic globalisation indicators.

International trade

Figure 1 shows the development over time of European Union (EU) international trade in goods and services in percentage of gross domestic product (GDP). The imports and exports include both intra-EU and extra-EU trade. In absolute (not shown here) and in relative (to GDP) terms, imports and exports develop fairly symmetrically, with a fall in 2009 followed by a gradual recovery thereafter. Although the crisis brought levels of imports and exports down to 2005 levels, it has taken less than two years for them to return to 2008 levels. Imports accounted for 40 % of GDP and exports accounted for 43 % in 2014.

Although in some small countries imports and exports are small in absolute terms (not shown here), they can be substantial as a percentage of their GDP. Whereas it is the larger countries and economies (except Germany) whose imports and exports constitute a smaller percentage of GDP due to the size of the domestic economy. The import and export figures show that EU countries have open economies in which imports and exports form a significant part of GDP.

Expressing trade relative to the size of the national economy demonstrates the extent to which countries are import- or export-oriented. As Figure 2 shows, smaller countries tend to trade more than larger countries.[1] The percentage of GDP attributable to imports and exports varies widely, ranging from 28 % in the United Kingdom to 203 % in Luxembourg for exports, and ranging from 27 % in Italy to 171 % in Luxembourg for imports.

In Figure 3, the ratios of exports to imports for 2014 are presented. The aggregate value for the EU-28 was 1.07 and more than three quarter of the countries had a ratio of more than 1, indicating that their exports were bigger than their imports. No country had a ratio above 1.2 or below 0.9. Germany was the only larger Member State with a ratio above that of the EU. The number of countries with a ratio below 1 has dropped from 18 in 2005 (not shown here) to only 6 in 2014.

Foreign direct investment (FDI)

Figure 4[2] shows the development of direct investment stocks in the EU by countries from outside the EU (extra-EU inward FDI) and of direct investment stocks by EU Member States in countries outside the EU (extra-EU outward FDI) for 2004–12. Both inward and outward investment grew steadily relative to GDP over recent years. The EU is a net investor relative to the rest of the world, with the gap between inward and outward FDI growing over time, from 4 % in GDP in 2004 to 10 % in 2012.

Figure 5 shows inward and outward FDI stocks by Member State in percentage of GDP at the end of 2012. Both intra-EU and extra-EU FDI are included to illustrate the scale of cross-border investment activity between EU national economies and those of other countries, being other EU Member States or countries outside the EU. At the end of 2012, inward FDI in percentage of GDP varied from 10 % in Greece to 201 % in Luxembourg, while outward FDI ranged from 1 % in Romania to 205 % in Luxembourg. The blue line in the graph shows where inward and outward FDI are equal. All Member States that joined the EU in or after 2004 as well as Belgium and Portugal are below this line. This means they attract more FDI than they invest abroad.

Employment

Figure 6 shows the employment in foreign-controlled enterprises in the EU where the controlling partner is from outside the EU-28, expressed as a share of employment in the EU. The graph shows that while there was a small decline (of around 0.3 pp) after 2008, the figures exceeded the 2008 level in 2011 and continue to rise in 2012.

Figure 7 shows the different shares of foreign controlled employment among the individual countries in 2012. Most of the countries have shares between 10 % and 27 %. Luxembourg and Estonia (both 38%) are exceptions with a higher share whereas Italy (7%), Greece (5%) and Cyprus (5%) have lower shares. The general tendency seems to be that larger Member States have a smaller share of their employment under foreign control.

The way forward

In preparing this article, certain choices were made about which aspects of globalisation to focus on. The article’s purpose is to provide some examples of economic globalisation indicators and show how they could be used. In July 2014, Eurostat published a first set of economic globalisation indicators on a dedicated section of its website. In March 2015 globalisation indicators broken down by economic activity were added. Eurostat aims to further develop this dedicated section with more indicators and alternative representations of data in the future.

Data sources and availability

The set of indicators of economic globalisation

One of the objectives of the ESSnet project on measuring global value chains is to develop a coherent and consistent set of indicators of economic globalisation. The results of this work will substantially increase the system’s capacity to analyse globalised business and to produce statistical evidence in this area, as is often requested by those involved in developing future policies. Data for these indicators could be collected and published within the European statistical system (ESS).

The proposed framework of main indicators contains a set of twelve indicators grouped in five concepts covering various aspects of economic globalisation.

These concepts are:

  • International trade
Imports of goods and services in percentage of GDP
Exports of goods and services in percentage of GDP
Export to import ratio
  • Foreign direct investment
Inward FDI stocks in percentage of GDP
Outward FDI stocks in percentage of GDP
FDI flows intensity – market integration
  • Employment
Employment in foreign-controlled enterprises as a share of total domestic employment
Employment development in foreign-controlled enterprises
Employment development in foreign affiliates
  • Research and development
R & D expenditure in foreign-controlled enterprises as a share of total R & D expenditure
  • Value added
Value added in foreign-controlled enterprises as a share of total value added
Value added development in foreign-controlled enterprises

One aspect of the project involved trying to assess the most meaningful criteria on which to base the data breakdowns for the main indicators defined above. This led to the identification of a set of supplementary indicators (see fact sheets as downloadable PDF) and a set of experimental indicators (see downloadable PDF). Most of the supplementary indicators are standard breakdowns of the main indicators that are readily available in the European statistical system, e.g. according to economic activity. The experimental indicators are mainly produced by means of micro data linking various statistical sources.

Context

Reliable indicators of the current situation are critical for policy-making, both at European and national level. The 2002 communication COM(2002) final 661/2002 of the European Commission to the European Parliament and the Council on principal European economic indicators (PEEI) states: ‘Modern-day democracies can only function efficiently if the policy makers and the public at large are well informed about the economic and social developments. There is nothing more important for monetary and fiscal policies than trustworthy statistics. They summarise overall developments and are the only reliable source to assess macroeconomic developments such as inflation, economic growth and the business cycle’.

This statement was reinforced by the 2010 communication COM/2010/2020 final of the European Commission on monitoring the Europe 2020 strategy: ‘The European Commission will monitor annually the situation on the basis of a set of indicators showing overall progress towards the objective of smart, green and inclusive economy delivering high levels of employment, productivity and social cohesion’.

One of the seven flagship initiatives of the Europe 2020 strategy is its industrial policy: ‘”an industrial policy for the globalisation era” to improve the business environment, notably for SMEs, and to support the development of a strong and sustainable industrial base able to compete globally.’ Reliable indicators of economic globalisation and its impact on the EU economy are essential for the effective implementation of this policy.

Economic globalisation is the process of internationalisation caused by or experienced by economic actors in the business economy. In practice, the main indicators of economic globalisation are defined based on the variables and breakdowns the European Statistical System (ESS) is obliged to provide, in accordance with regulations such as those applying to structural business statistics, foreign affiliate statistics, national accounts and international trade in goods.

The EU is not alone in trying to produce reliable statistics on globalisation. The Organisation for Economic Cooperation and Development (OECD) Handbook on Economic Globalisation Indicators (OECD, 2005) develops these ideas further by putting together a framework of indicators based on ‘…main concepts and definitions already adopted by the aforementioned manuals[3], putting them within the framework of globalisation and showing the existing links between these manuals.’ The Handbook goes further by developing in more detail the concepts linked to the activity of multinational enterprises and proposing recommendations that can be used to develop harmonised statistics.

It identifies four aspects of economic globalisation: globalisation of international trade; foreign direct investment (FDI); activities of multinational enterprises; and internationalisation of the dissemination of technology. These aspects form the basis of globalisation and describe the main areas of involvement of economic actors in the globalisation process.

To fully understand the consequences of economic globalisation, the economic behaviour of the actors in the process should also be taken into account (Van der Veen, G., 2007). The view generally held by policy makers is that the pace and direction of economic globalisation has a significant impact on employment, business dynamics and economic growth. It would therefore be useful to introduce an explicit distinction between indicators of economic globalisation and indicators of its impact. This position is also supported by a large body of literature on the effects of economic globalisation (Carroll and Hannan, 2000; OECD, 2005; Dicken, 2007).

See also

Further Eurostat information

Publications

Database

Foreign controlled EU enterprises - inward FATS (fats)
Foreign affiliates of EU enterprises - outward FATS (fats_out)
International sourcing statistics - all activities (iss)

Dedicated section

Methodology / Metadata

Source data for tables and figures (MS Excel)

Excel.jpg International trade, investment and employment as indicators of economic globalisation

Other information

External links

Notes

  1. The presence of ports such as Rotterdam in the Netherlands and Antwerp in Belgium, with large volumes of transit trade, can cause trade figures in those countries to be overstated. This is because the goods are reported as trade to that country rather than to their final destination (known as the 'Rotterdam effect').
  2. In Figures 4 and 5, FDI for the EU-27 includes the investments made or received by special-purpose entities (SPEs) and national data for the following countries excludes the activities of SPEs: Austria, Cyprus, Hungary, Luxembourg and the Netherlands. SPEs are most often foreign-owned financial holding companies that are principally involved in cross-border financial transactions and carry out no or only negligible local activity in the Member State of residence. See FDI metadata.
  3. This refers to the International Monetary Fund (IMF) Manual of Balance of Payments (MBP5), the OECD Benchmark Definition of FDI (3rd edition, 1996), the Frascati Manual (OECD, 2002), the Technological Balance of Payments Manual (OECD, 1990), and some of the concepts of the Manual on Statistics of International Trade in Services (2002).

References

  • Carroll, G. R., & Hannan, M. T. (2000). The Demography of Corporations and Industries. Princeton, Jersey: Princeton University Press.
  • Dicken, P. (2007). Global Shift: Mapping the Changing Contours of the World Economy. London: Sage.
  • Van der Veen, G. (2007). Integration of microdata from business surveys and the social statistics. DGINS Conference "The ESS response to globalisation - are we doing enough?". Budapest.