International trade, investment and employment as indicators of economic globalisation

Data extracted in October 2018.

Planned article update: October 2019.

Highlights

EU exports of goods and services in % of GDP has been increasing constantly, while imports have been stable, showing the growing role of the EU as a net exporter in the world.

Both EU inward and outward investment grew steadily in % of GDP 2013–2016, with outward investments higher than inward investments showing the EU's role as a net investor in the world.

Employment in foreign-controlled enterprises in the EU increased in 2010–2014 with a slight decrease in 2015.

EU-28 imports and exports in percentage of GDP by year, 2010-2017
Source: Eurostat (nama_10_gdp)

This article describes the construction of a set of European Union (EU) economic globalisation indicators. It presents results for the selected 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.

Full article

Overview

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

The European Union countries have open economies in which imports and exports form a significant part of gross domestic product (GDP). Figure 1 shows the development since 2010 of the EU's international trade in goods and services as a percentage of GDP. The imports and exports include both intra-EU and extra-EU trade. The percentage of imports to GDP has remained stable between 2011 and 2016 with a slight increase in 2017, while the percentage of exports to GDP has been increasing constantly. This shows the increasing role of the EU as a net exporter in the world.

Figure 1: EU-28 imports and exports in percentage of GDP by year, 2010-2017
Source: Eurostat (nama_10_gdp)

Although in some smaller countries imports and exports are minor in absolute terms (not shown here), they can be substantial as a percentage of their GDP. For larger countries and economies, imports and exports generally constitute a smaller percentage of GDP due to the size of the domestic economies. 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 30.2 % in the United Kingdom to 223 % in Luxembourg for exports, and ranging from 28.2 % in Italy to 189.8 % in Luxembourg for imports. A large part of Luxembourg's imports and exports come from financial services.

Figure 2: Imports and exports in percentage of GDP by country, 2017
Source: Eurostat (nama_10_gdp)

In Figure 3, the export/import balance for 2017 is presented. As can be seen from the graph, 5 out of 28 EU Member States are net importers (marked by red in the figure), meaning that they import more goods and services than export. Being a net importer could present an issue for particular states due to the fact that they would have to borrow externally to maintain the balance of payments. The rest of the EU countries, as well as EU-28 as a whole, however, export more than import, as indicated by the green bars in the graph.

Figure 3: Export-Import balance by country, 2017
Source: Eurostat (nama_10_gdp)

Foreign direct investment (FDI)

Figure 4 shows the development of direct investment stocks in the EU by countries from outside the EU (inward FDI) and of direct investment stocks by EU Member States in countries outside the EU (outward FDI) for 2013–2016. Both inward and outward investment grew steadily relative to GDP. Outward investments remained higher than inward investments for the whole period showing the EU's role as a net investor in the world.

Figure 4: Inward and outward foreign direct investment stocks relative to the rest of the world as a percentage of GDP, EU-28, 2013-2016
Source: Eurostat (bop_fdi6_pos), (nama_10_a64) and (bop_fdi_pos_r2)

Figure 5 shows inward and outward FDI stocks by Member State in percentage of GDP in 2016. Both intra-EU and extra-EU FDI are included to illustrate the scale of cross-border investment activity between EU countries and those of other countries, both inside and outside of the EU. By the end of 2016, inward FDI in percentage of GDP varied from 13.7 % in Greece to 6 540.4 % in Luxembourg, while outward FDI ranged from 0.4 % in Romania to 7 909.6 % in Luxembourg^[2]. 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 are above this line which means they attract more FDI than they invest abroad.

Figure 5: Inward and outward foreign direct investment by Member State, in percentage of GDP, 2016
Source: Eurostat (bop_fdi6_pos) and (nama_10_gdp)

It is important noting that several outliers were excluded from Figure 5 due to their large difference in comparison to other EU states. As such, these outliers can be found in Table 1.

Table 1: Outliers - Inward and outward foreign direct investment by Member State, in percentage of GDP, 2016
Source: Eurostat (bop_fdi6_pos) and (nama_10_gdp)

For better visualisation of Inward-Outward FDI, Figure 6 was created. The graph represents the balance between Inward and Outward FDI in each of the Member States, with green bars representing countries which receive more FDI than they invest, and red bars representing countries which invest more in comparison to FDI they receive. As can be observed from Figure 6, Member States with developed and largest economies, such as Germany and France are the largest net investors, while smaller economies such as Romania and Bulgaria are on the other side of the extreme, being the largest net receivers of FDI.

Figure 6: Inward-Outward FDI balance ratio by Member State, 2016
Source: Eurostat (bop_fdi6_pos), (nama_10_a64) and (bop_fdi_pos_r2)

Employment

Figure 7 shows the employment in foreign-controlled enterprises in the EU where the controlling parent is from outside the EU, expressed as a share of total employment in the EU in the years 2010-2015. The graph shows a steady increase from 2010 to 2014 with a slight decrease in shares in 2015. Overall, in 2014 and 2015 the shares are in the region of 5.9 %.

Figure 7: Employment shares of enterprises controlled from outside the EU-28 in total EU employment by year, 2010-2015
Source: Eurostat (fats_g1a_08)

Figure 8 shows the percentages of foreign controlled employment in the EU Member States in 2015. Most of the countries have shares between 10 % and 28 %. Luxembourg and Estonia (39.0 % and 38.1 % respectively) are exceptions with a higher share, while Italy (8.2 %), Cyprus (6.9 %) and Greece (5.7 %) have shares below 10 %. The general tendency seems to be that larger Member States have a smaller share of their employment under foreign control.

Figure 8: Employment shares of foreign controlled enterprises (world except reporting country) in total domestic employment by country, 2015
Source: Eurostat (fats_g1a_08)

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. Users can find these indicators in this dedicated section of Eurostat.

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.

Source data for tables and graphs

International trade, investment and employment as indicators of economic globalisation

Data sources

The set of indicators of economic globalisation

The aim of the economic globalisation indicators is to contribute to the analysis of globalised business which 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).

Currently a set of twelve indicators grouped in five concepts covering various aspects of economic globalisation has been developed.

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

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).

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Notes

↑ 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’).
↑ From 2013 onwards figures are based on new methodological standards — Balance of Payments Manual, 6th edition (BPM6), and Benchmark Definition of FDI, 4th edition (BD4). SPEs are now included in the data which explains the very high percentage for Luxembourg.
↑ 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).

[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] From 2013 onwards figures are based on new methodological standards — Balance of Payments Manual, 6th edition (BPM6), and Benchmark Definition of FDI, 4th edition (BD4). SPEs are now included in the data which explains the very high percentage for Luxembourg.

[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).

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