Archive:Economic globalisation indicators in industry, wholesale and retail trade

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Data extracted in March 2015 Further Eurostat information, Main tables and Database.

In June 2014 Eurostat published a statistics explained article describing the construction of a set of economic globalisation indicators. Eurostat has extended this set of indicators along two dimensions. Firstly the indicators are calculated separately for their intra-EU and extra-EU partners and secondly the indicators are calculated separately for 12 NACE Rev. 2 sections of the non-financial business economy. This article shows graphs for some of the indicators in two NACE sections (Manufacturing and Wholesale and retail trade), illustrating the type of information which could be used to track the different aspects of globalisation.

Table 1: Correlation coefficients between economic globalisation indicators and size measured in gross value added in 2011

Table 2: Economic globalisation indicators for exports and imports in Manufacturing and Wholesale and retail trade in 2011

Table 3: Economic globalisation indicators for FDI in Manufacturing and Manufacturing and Wholesale and retail trade in 2011

Figure 1: Share of foreign controlled employment in total in Manufacturing and Wholesale and retail trade in 2011

Figure 2: Share of foreign controlled turnover in total in Manufacturing and Wholesale and retail trade in 2011

Table 4: Share of foreign controlled employment and turnover in total in Manufacturing and Wholesale and retail trade in 2011

Figure 3: Share of foreign controlled R&D expenditure in total domestic R&D expenditure in Manufacturing in 2011

Figure 4: Share of foreign controlled R&D expenditure in total, in Manufacturing, broken down by partner in 2011

Main statistical findings

Economic globalisation indicators are larger for intra-EU partners than for extra-EU partners. This shows the importance of the internal market and also the importance of proximity. We find this for all indicators both in Manufacturing and Wholesale and retail trade although not always for all countries. In the tables presented in this article we have marked the exception in light green. Quite often the exceptions are countries on the outskirt of the EU and are therefore close to extra-EU partners.
Economic globalisation indicators are larger for Manufacturing than for Wholesale and retail trade. Both in Manufactureing and Wholesale and retail trade enterprises buy and sell products. However in Wholesale and retail trade products are boughtand sold without significantly changing them whereas in Manufacturing the inputs are transformed into final product before they are sold. It is this middle step that is often organised across borders in global value chains and this could account for the fact that globalisation plays a larger role in Manufacturing than in Wholesale and retail trade.
Another difference found between Manufacturing and Wholesale and retail trade in the ratios between exports and imports. Typically in Manufacturing exports are larger than imports while the reverse is true in Wholesale and retail trade. Possibly this is related to the fact that relative to Wholesale and retail trade the value of imports tends to be lower in Manufacturing wheres in exports the value of exports in Manufacturing is higher.
We find that economic globalisation indicators are larger in smaller countries than in larger countries. This is because larger countries have a greater variety of resources and therefore have less need for globalisation. Another factor influencing the and for smaller countries the border is on average closer that for larger countries reducing their transport cost for international trade. We find this inverse relationship between size and globalisation most prominently in Manufacturing but somewhat less clear in Wholesale and retail trade.

There are of course exceptions to these findings that we have indicated in the tables shown in this report. At the same there are many other aspects influencing globalisation such as history, infrastructure, human capital, tax rules, wages and lablors costs, business climate etcetera, but these fall outside the scope of this article.

Economic globalisation indicators are larger in smaller countries

In table 1 we present the correlation coefficients for 9 of the globalisation indicators to the size of the countries (expressed in GVA) broken down by intra/extra-EU partner and by Manufacturing/Wholesale and reatil trade sectors. In Manufacturing we find that 17 of 18 correlations are negative suggesting that the smaller countries are more globalised than larger countries. There are two ways in which size effects globalisation. Firstly, larger countries tend to have a greater variety of resources and therefore have less need for international trade. Secondly smaller countries tend to have lower transport costs for international trade than larger countries because for smaller countries on average the border is nearer than for larger countries.

In Wholesale and retail trade the relationship between size and globalisation is less clear. We distinguish three cases. Firstly there are indicators where larger countries still have smaller indicator values. Secondly there are countries where the opposite is true. Finally there are also countries where there is a difference between intra-EU and extra-EU partners. The first case is true exports, imports and inward FDI ratios to GVA. The second case is true for outward FDI and employment and turnover of foreign affiliates, here it might be that country specific legislation plays a important role than size. Finally for foreign controlled employment and turnover the intra-EU correlations still have the relation between smallness and globalisation while the extra-EU correlations do not. It should be noted however that when combining extra-EU and intra-EU the extra-EU will dominate the calculation showing in general higher indicator values for smaller countries.

International trade

Table 2 shows the exports and imports of goods divided by GVA and the ratio of exports to imports by country. At first sight it seems strange to find ratios of more than 100% in exports and imports divided by GVA. However there is no contradiction because GVA is calculated using net exports (exports – imports). Thus whenever exports and imports are large compared to domestic consumption, investment and government expenditure these indicators can very well have values of more than 100%.

When we compare intra and extra EU figures for exports and imports we see that almost always the intra-EU figures are higher than the extra-EU figures underlying the importance of the internal market. The exceptions have been coloured green. The few countries that are exceptions are Greece, Spain, Malta, Finland and the United Kingdom although none of them is an exception for all combinations of exports/imports, manufacturing/trade and intra-EU/extra-EU. They all tend to be on the outside of the EU and therefore are likely to have important extra-EU trading partners.

Comparing manufacturing to wholesale and retail trade we see a clear difference in the export and import figures of these sectors. Manufacturing typically has larger shares in exports confirming our second main finding. However in Wholesale and retail trade typically the shares in imports are larger than in exports . A possible explanation is that in Manufacturing, countries in the EU tend to import relatively cheap raw materials and intermediate products while exporting more expensive final products whereas in Wholesale and retail trade the opposite is true.

The combined effect of lower imports and higher exports in Manufacturing causes for most countries a negative trade balance whereas in Wholesale and retail trade the opposite is true. This can clearly be seen in the last four columns of the table where exports are divided by imports, mostly giving values higher than 100% for Manufacturing and lower than 100% for Wholesale and retail trade.

Foreign direct investment

The foreign direct investments from and to EU countries divided by GVA are shown in table 3. Just as for imports and exports, we find for that intra-EU investments divided by GVA are generally higher than extra-EU. This is more prominent in inward investments (first four columns) than in outward investments (last four columns). Comparing FDI between Manufacturing and Wholesale and retail trade we see that in general FDI as a percentage of GVA is bigger in Manufacturing than in Wholesale and retail trade. This seems to be especially the case for most of the larger economies with the exception of Germany.

When comparing inward and outward investments we see that for most countries intra-EU inward investments are larger than outward investments whereas for extra-EU it is the more often the other way around. Since we are looking at aggregated partners (extra-EU and intra-EU) this could be due to the distribution across different economic sectors and different countries.

Differences between small and large economies give a more mixed picture for FDI than they do for imports and exports. As expected large economies such as France, Germany and Italy have low ratios of FDI stocks to GVA but other large economies such as Spain and the United Kingdom have fairly high ratios. It is not clear whether these differences are due to economic phenomena or due to regulatory differences between countries.

Foreign controlled employment and turnover

One enterprise is said to control second enterprise when it has 50% . Figure 1 and 2 respectively show the foreign controlled share of employment and turnover in total domestic employment and turnover. The pattern for both is obviously quite similar; countries that have high foreign controlled shares of employment also have high foreign controlled shares of turnover. For almost all countries the shares are higher in Manufacturing than in Wholesale and retail trade, and when the opposite is true the differences are small.

When comparing both figures we see that for almost all countries the foreign controlled shares in turnover are bigger than the shares in employment. The unweighted average for the employment shares is 29% in Manufacturing and 18% in Wholesale and retail trade. For turnover these shares are 47% and 31% respectively. Logically this means that in domestic controlled enterprises the shares in turnover must be smaller than the shares in employment, suggesting a higher rate of turnover to employment in foreign controlled enterprises.

In table 3 the shares have been broken down by intra-EU and extra-EU. As before for imports, exports and FDI, in most countries both foreign controlled employment and turnover have higher values for intra-EU than for extra-EU partners . For the few countries where the opposite is true we see that the differences are quite small for Germany and Italy but noticeable for Ireland, Luxembourg and the Netherlands (both intra-EU and extra EU) and the United Kingdom (only intra-EU).

As before larger countries generally have higher shares of foreign controlled employment and turnover than smaller countries although there are exceptions on both sides. For the larger countries an exception is the United Kingdom whereas for the smaller countries examples are Finland and Portugal which both have low shares.

Foreign controlled research and development (R&D)

R&D statistics of foreign controlled enterprises are collected for the NACE-sections B to F of the non-financial business economy which does include Manufacturing (section C) but not Wholesale and retail trade (section G). Therefore we only show the indicators for Manufactuging in figures 3.

Shares vary a lot between countries, we find share of over 60% for Slovakia, Czech Republic and Hungary and shares of under20% for Finland, Portugal and Estonia. Of the larger European economies we see that Germany and France have relatively low shares of around 20% whereas the United Kingdom has a share that is relatively high (58%) with Spain (39%) in between. Therefor the assumption that large countries have small shares is only partly true.

In figure 4 the figures have been broken down by intra-EU and extra-EU partners and the data for 2009 has been added. The three countries with the highest share in intra-EU expenditure in 2011 (Slovakia, Czech Republic, Hungary) are member states that joined the EU in 2002. In contrast in extra-EU expenditure among the four countries (United Kingdom, Netherlands, Slovakia and Austria) with the highest share, three are older member states. All of the countries that joined EU in 2002 or later have higher shares in intra-EU expenditure than in extra-EU expenditure whereas in the older member states some have higher shares in extra-EU expenditure (Netherlands, Portugal, Finland, United Kingdom ) whereas others have not (Austria, Germany, Spain and France)

Further Eurostat information

Publications

Dedicated section

Global Value Chains - Economic Globalisation Indicators

Methodology / Metadata

Foreign affiliates of EU enterprises - outward FATS (ESMS metadata file — fats_out_esms)
Foreign controlled EU enterprises - inward FATS (ESMS metadata file — fats_esms)
European Union direct investments (ESMS metadata file — bop_fdi_esms)
International trade (ESMS metadata file — ext_esms)

Source data for tables, figures and maps (MS Excel)

Figures for statistics explained on globalisation indicators for manufacturing and wholesale and retail trade

Other information

Commission communication COM/2010/0612 final Trade, Growth and World Affairs Trade Policy as a core component of the EU's 2020 strategy - European Commission, 2010