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

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The present article shows graphs and figures for nine indicators in industry, wholesale and retail trade to illustrate the type of information that could be used to track the various aspects of globalisation. The article International trade, investment and employment as indicators of economic globalisation showed the growing importance of globalisation for the European economy. In this article, the importance of globalisation in two specific economic sectors is discussed: industry and wholesale and retail trade.

Table 1: Economic globalisation indicators for exports and imports in industry, and wholesale and retail trade, in 2015
Source: Eurostat (nama_10_a64) and (ext_tec01)

Table 2: Economic globalisation indicators for FDI in industry, and wholesale and retail trade, in 2015
Source: Eurostat (nama_10_a64) and (bop_fdi6_pos)

Figure 1: Proportion of employment by foreign controlled enterprises in total employment in industry, and wholesale and retail trade, in 2014
Source: Eurostat (fats_g1a_08)

Figure 2: Proportion of turnover of foreign controlled enterprises in total turnover in industry, and wholesale and retail trade, in 2014
Source: Eurostat (fats_g1a_08)

Table 3: Proportion of employment and turnover of foreign controlled enterprises in total in industry, and wholesale and retail trade, in 2014
Source: Eurostat (fats_g1a_08)

Figure 3: Labour cost levels compared with the ratio of employment and turnover of foreign affiliates to total employment and turnover in industry in 2014
Source: Eurostat (lc_lci_lev), (fats_out2_r2) and (fats_g1a_08)

Figure 4: Labour cost levels compared with the ratio of employment and turnover of foreign affiliates to total employment and turnover in industry in 2014 (detail)
Source: Eurostat (lc_lci_lev), (fats_out2_r2) and (fats_g1a_08)

Figure 5: Labour cost levels compared with the ratio of employment and turnover of foreign affiliates to total employment and turnover in wholesale and retail trade in 2014
Source: Eurostat (lc_lci_lev), (fats_out2_r2) and (fats_g1a_08)

Figure 6: Labour cost levels compared with the ratio of employment and turnover of foreign affiliates to total employment and turnover in wholesale and retail trade in 2014 (detail)
Source: Eurostat (lc_lci_lev), (fats_out2_r2) and (fats_g1a_08)

Table 4: Ratios of employment and turnover in foreign affiliates to total domestic employment and turnover in industry, and wholesale and retail trade, in 2014
Source: Eurostat (fats_out2_r2) and (fats_g1a_08)

Figure 7: Proportion of foreign controlled R&D expenditure in total domestic R&D expenditure in 2015
Source: Eurostat (fats_g1a_rd)

Main statistical findings

Economic globalisation plays a large role in the EU’s industry and wholesale and retail trade sectors. Economic Globalisation Indicators in these two sectors have high values.
Economic globalisation is more significant between intra-EU partners than between EU Member States and extra-EU partners, showing the importance of the single market.
Import and export shares of gross value added (GVA) are greater for smaller economies than for larger ones; the latter have bigger domestic markets and more resources and therefore less need for international trade.
For most Member States, the ratio of exports to imports shows that there is a positive trade balance in industry and a negative trade balance in wholesale and retail trade.
The share of total domestic turnover for foreign controlled enterprises is almost always higher than their share of total employment, implying higher turnover per person employed than in domestically controlled enterprises.
For foreign affiliates, the ratios of employment and turnover to domestic employment and turnover are generally higher in Member States with high labour costs.
The highest shares of foreign-controlled R&D expenditure in total domestic R&D expenditure for intra-EU partners are found in Croatia, Slovakia, the Czech Republic and Hungary. For extra-EU partners, the highest shares are observed in Hungary, Slovenia and the Netherlands.

There are of course exceptions to these findings. At the same time, there are many other aspects influencing globalisation, such as history, infrastructure, human capital, tax rules, wages and price levels and business climate, but these fall outside the scope of this article.

International trade in goods

Table 1 shows the exports and imports of goods divided by Gross Value Added (GVA), and the ratio of exports to imports by country. At first sight, it might seem strange to find ratios of more than 100 % in exports and imports divided by GVA. However, this is not unusual because GVA is calculated using net exports (exports minus imports). Thus, whenever exports and imports are high compared with domestic consumption, investment and government expenditure, these indicators can 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: this underlines the importance of the single market. For all Member States intra-EU imports and exports were more significant than extra-EU imports and exports in wholesale and retail trade. The same was the case for industry for most EU Member States, with exceptions of Cyprus and the United Kingdom, where the percentage of extra-EU exports is higher than intra-EU exports; Lithuania, where the percentage of extra-EU imports is higher than intra-EU imports; and Greece with both higher extra-EU imports and exports than intra-EU imports and exports. Comparing industry with wholesale and retail trade, we see a clear difference in the export and import figures for these sectors. Industry typically has greater shares of exports while wholesale and retail trade has larger shares of import. A possible explanation is that industry Member States tend to import relatively cheap raw materials and intermediate products, while exporting more expensive final products.

The combined effect of lower imports and higher exports in industry gives most countries a positive trade balance, while in wholesale and retail trade the opposite is true. This can clearly be seen in the last four columns of Table 1 (exports divided by imports), which mostly give values higher than 1 for industry and lower than 1 for wholesale and retail trade.

Foreign direct investment

Table 2 shows foreign direct investment (FDI) to and from EU countries divided by GVA. Just as for imports and exports of goods, we find that intra-EU investments divided by GVA are generally higher than extra-EU. This is more prominent for inward than for outward investments. Comparing FDI between industry and wholesale and retail trade, we see that, in general, FDI as a percentage of GVA is higher in industry than in wholesale and retail trade. This seems to be especially the case for larger economies with the exception of Germany.

For most countries, intra-EU inward investments are larger than outward investments while for extra-EU it is slightly more often the other way around: outward investments are greater than inward.

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

Employment and turnover in foreign controlled enterprises

An enterprise is foreign controlled when another enterprise from abroad owns, directly or indirectly, 50 % or more of the shares. Figures 1 and 2 respectively show the proportion of employment and turnover to total employment and turnover in foreign controlled enterprises. The pattern for both is obviously quite similar: countries that have high shares of employment in foreign controlled enterprises also have high shares of turnover in foreign controlled enterprises. For almost all countries, the shares are higher in industry than in wholesale and retail trade.

When comparing employment and turnover shares in Table 3, we see that in almost all cases turnover shares are higher than or the same as employment shares. In extra-EU industry, only Latvia has a higher share in employment than in turnover. In wholesale and retail trade, we find 3 of 30 countries (Ireland, Luxembourg and Poland) for intra-EU partners and none for extra-EU partners where this is the case. Since both are shares of total employment and turnover, this implies a higher turnover per person employed for foreign controlled enterprises than for domestically controlled enterprises.

Employment and turnover in foreign affiliates

In contrast to foreign control, where the controlling enterprise is abroad, domestic enterprises can also control a foreign enterprise. In that case, the controlled enterprise is said to be a foreign affiliate. In Figure 3 and 4 (for industry) and Figure 5 and 6 (for wholesale and retail trade), we have plotted the ratios of employment and turnover of foreign affiliates to total employment and turnover against the labour cost levels. In industry, we find the highest ratios for Luxembourg^[1], the Nordic Member States and the United Kingdom, France, Germany, Belgium, and Austria. These countries also have a high level of labour costs. In wholesale and retail trade, the countries that have high ratios and high levels of labour costs are mostly the same. In the article International sourcing of business functions, we found that the highest proportion of sourcing internationally is observed in small, open economies with high labour costs. That article also found that sourcing is still mainly driven by industry enterprises which are increasingly sourcing support business functions.

Table 4 breaks down the ratios for extra-EU and intra-EU partners. Again, we find that in most countries globalisation plays a bigger role in industry than in wholesale and retail trade. When comparing intra-EU and extra-EU rates, we see that in industry more countries have higher extra-EU values than intra-EU for employment. In the article Foreign affiliates statistics — employment by business function, we also found that enterprises engaged in international sourcing were more likely to have intra-EU foreign affiliates than extra-EU affiliates, and that industry enterprises were more likely than services enterprises to have foreign affiliates.

Research and development in foreign controlled enterprises

R&D statistics of foreign controlled enterprises are collected for the NACE-sections B to F of the non-financial business economy, which include industry (sections B to E) and Construction (section F), but not wholesale and retail trade (section G). Therefore, Figure 7 only contains this indicator for industry and construction showing that shares for intra-EU vary between 9 % and 64 % while extra-EU vary between 1 % and 25 %. For intra-EU Croatia, Slovakia, the Czech Republic and Hungary have the highest shares, while Italy, the Netherlands and Germany have the lowest. For extra-EU Hungary, Slovenia and the Netherlands have the highest shares, while Greece and Bulgaria have the lowest.

Data sources and availability

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 globalization have 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^[2], 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).

Further Eurostat information

Publications

Dedicated section

Economic globalisation

This dedicated section has more information on economic globalisation. There are links to the tables with the main globalisation indicators. The indicators broken down by economic activity and partner, that were used in this article, are in the same section of the Eurostat database and contain figures not only for industry and wholesale and retail trade but also for other sections of the non-financial business economy.

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 (BPM6) (ESMS metadata file — bop_fdi6_esms)
International trade in goods (ESMS metadata file — ext_go_agg_esms)

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

Figures for statistics explained on globalisation indicators for industry 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

External links

Notes

↑ The ratios of employment (540 %) and turover (398 %) for Luxembourg fall outside the graph. Luxembourg labour cost level was 32 € / hour
↑ 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 ratios of employment (540 %) and turover (398 %) for Luxembourg fall outside the graph. Luxembourg labour cost level was 32 € / hour

[2] 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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