Working Party on Statistics

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1 For Official Use For Official Use Organisation de Coopération et de Développement Economiques Organisation for Economic Co-operation and Development 10-Jul-2002 English - Or. English DIRECTORATE FOR SCIENCE, TECHNOLOGY AND INDUSTRY COMMITTEE ON INDUSTRY AND BUSINESS ENVIRONMENT Working Party on Statistics SESSION ON GLOBALISATION PROPOSED WORK PROGRAMME, This text is a revised version of the Programme of Work which was discussed by the Group of Experts on Globalisation Indicators at their meeting on 9-11 April It is submitted for information to the Group of Experts on Globalisation Indicators and the Committee on Industry and Business Environment (CIBE). English - Or. English Contact person: Thomas Hatzichronoglou; Tel: (33 1) ; Fax: (33 1) ; thomas.hatzichronoglou@oecd.org JT Document complet disponible sur OLIS dans son format d'origine Complete document available on OLIS in its original format

2 Introduction 1. For more than a decade, the issues raised by globalisation have been at the fore of public debate and policy concerns. The Committee on Industry and Business Environment (CIBE), which has placed this issue near the top of its agenda in the past, has identified the lack of a comprehensive and uniform set of indicators across OECD Member countries as a limitation for studying and analysing the phenomenon. At that committee's request, the Expert Group on Economic Globalisation Indicators was created exactly ten years ago. 2. At the outset, the meetings of this group were treated as special sessions of the Statistical Working Party of the CIBE (SWIC), but in light of the specific nature of the issues and the different profile of delegates 1 participating in its meetings, the Group on Globalisation quickly has developed a work method that is independent but complimentary to that of SWIC. 3. The need to measure the effects of globalisation on the activity and economic performance of firms has been highlighted by many policy makers, and was the subject of one of the principal recommendations from the Industry Committee meeting at Ministerial level [SG/COM/NEWS(98)8]. Given the breadth of the fields to be studied and the scarce resources of the Secretariat, it has been necessary from the outset to make choices and establish priorities. Three broad areas have been developed - data, methodology supporting the development of data and economic analysis that uses the data to explore policy issues. These areas are self-reinforcing in that problems identified in one area leads to work in another to address the deficiency. Nevertheless, the division of this labour between Member country delegates, the Secretariat and external expert consultants depends on the subject matter. In general the delegates have expertise in areas concerning methodology and the supply of raw data, the Secretariat assumes responsibility for compiling, organising and disseminating the methodological and statistical information supplied by the Member countries and the Secretariat, sometimes with the assistance of outside experts, engages in the economic analysis of this data for its implications for policy for groups like the Committee on Business and Industry Environment. Figure 1 provides an overview of the work proposed, how one part builds on another and the relative responsibilities for different tasks between the delegates to the Expert Group and the Secretariat. 1. Currently, of the 60 experts participating in the meeting on globalisation indicators, only six or seven are common to the two groups. Moreover, many of these experts come not from statistics bureaus or industry ministries, as is the case with the Statistical Working Party (SWIC), but from Ministries of economy and finance and central banks. 2

3 Methodology Proposed Programme of Work: Analysis Employment Innovation MNEs & Structural Change Secretariat / Consultants Data Methodology Reference Indicators Main Indicators of Economic Globalisation publication Framework / Manual WP Delegates 4. Early in the work of this group, delegates noted the lack of any reference guide for collecting and harmonising these data, as well as the lack of reference indicators concerning, more generally, the principal forces driving globalisation. This priority task has been addressed over the last several years through preparation of a document provisionally called "Manual on Economic Globalisation Indicators", which sets out guidelines for collecting data and harmonising them internationally. Given the horizontal nature of this work, the project has been pursued in close co-operation with other OECD working parties and committees, including those of other directorates 2. Data 5. When it comes to data collection, the choice focused on the economic activity of multinational firms for inward investment in manufacturing industries. This involved a great number of variables (18), 2. This co-operation involves, in particular, the Working Party on Financial Statistics, the Committee on International Investment and Multinational Enterprises (CIME), the experts on international trade in services statistics (Statistics Directorate), the Trade Committee, the OECD National Experts on Science and Technology Indicators (NESTI), the Science and Technology Policy Committee (CSTP) and the Working Group on Innovation and Technology Policy (TIP). 3

4 including production, turnover, employment, value added, gross fixed capital formation, R&D expenditure, exports, imports and gross operating surplus. These data were in fact being officially compiled in many countries, but there had never been an effort to harmonise their collection at the international level. At the request of the CIBE, the Secretariat's surveys have been gradually extended to include data on outward investment and also on services relating to both categories of investment. The latter data category is of great interest, particularly for the WTO, since it provides support for negotiations on the liberalisation of services within the GATS, in the form of qualitative information on the trade and activity of multinational firms in the services sector. 6. In fact, the database on the activity of multinational firms, which currently covers 19 OECD countries, is a unique source of worldwide information and provides a complement to information on direct investment flows. A number of analyses such as OECD s Economics Department project on Policy Influences on Trade and Foreign Direct Investment can now be undertaken using data on the activity of multinationals published by the OECD under the title "Measuring Globalisation: the Role of Multinationals in OECD Economies", volume 1: "Manufacturing Industry" and volume 2, "Services Sector". Analysis 7. A number of analytical studies have been pursued over the last ten years (an illustrative list is included as an appendix to this paper). These analytical studies are of great interest to the Group and to the Organisation as a whole, for two major reasons. First, they make it possible to test and verify the relevance and quality of data collected through the surveys, as well as the indicators constructed from them. A solid understanding of these data and their limits is essential to using and interpreting them correctly. It will also serve to improve the methodology and adapt the content of the surveys to analytical needs. The second reason is that the studies help decision-makers to understand how the globalisation process functions, and to adjust their policies so that their countries can derive greater benefit from globalisation. Until recently, however, the scarcity of internationally comparable databases, combined with the very limited resources available to the Secretariat in this area, has made it impossible to pursue these analytical studies as quickly as policy makers might wish. Mission and Future Work 8. In light of the above considerations, the current mission of the group and broad orientation of future work of the Group could be summarised as follows: To collect basic data from Member countries on the activity of multinational firms (foreign affiliates in host countries, affiliates of national firms abroad, and the activity of parent companies in the originating or home country). To improve the methodological approach to measuring the scope of the forces driving globalisation. To measure the impact and consequences of globalisation on firms economic performance and, more generally, on the economies of Member countries. To co-operate closely with other OECD working groups and committees involved in this area, and to develop joint projects with these groups on each subject of study. This co-operation also needs to be extended and reinforced to other international organisations (i.e. IMF, WTO, the World Bank, UNCTAD, ILO, etc.), as well as with research centres and universities in Member countries that are working in this field. 4

5 Proposed Programme of Work ( ) 9. The proposed near-term work of the group should seek to improve the coverage and international comparability of its data collection and dissemination efforts in light of the recommendations made in the manual. Work on the manual should enter into its final stages with minor refinements as it benefits from comments made by other groups and feedback from users as they adopt the recommendations and seek to compile data for constructing the various indicators. This work should be exploited in a series of analytical projects that run parallel to the statistical and methodological work and traverse a continuum of sophistication ranging from the development of the reference series of indicators described in the manual to an analysis of these indicators in the context of the role of multinational enterprises' role in structural change to a more complex analysis of the impact of various types of international links (e.g. multinational enterprises, trade, patents) that affect the diffusion of innovations and their impact on productivity and economic growth. Building on this work, future work, in concert with work by NESTI on the international mobility of the highly skilled ( brain drain / gain ), should analyse the impact of MNEs on employment, skills and wages. Methodological work 10. The proposed methodological work involves two aspects: a) Finalisation and publication of the OECD's Manual on Economic Globalisation Indicators, including the direct contribution of DAFFE concerning the chapter on foreign direct investment (chapter 2). 11. The Manual on Economic Globalisation Indicators has developed a fairly detailed inventory covering most of the methodological problems with data on the activity of multinational firms, and it offers recommendations for ensuring greater international comparability for these data. DAFFE will contribute directly to this publication by finalising the second chapter of the Manual by the end of autumn Some additional work will be required as this chapter is circulated for review and efforts are undertaken to ensure that the proper links and internal consistency exists across all the chapters of the manual. The Manual is expected to be published in 2003, subject to approval by several committees and working parties directly involved in its preparation (see footnote 2). This document will serve to identify more clearly limits to national data, as compared to the standards adopted in the manual, and to improve the description of the metadata. It should also be an extremely useful tool for OECD Member countries that are just beginning to collect these data, since they will be able to use internationally agreed definitions from the outset. b) Establish a closer co-operation with the Working Party on Financial Statistics (DAFFE) in order to analyse and resolve methodological problems of common interest. 12. The co-operation points between the Working Party on Financial Statistics (DAFFE) and the Expert Group on Globalisation Indicators (DSTI) could be extended to include: Links between the databases on foreign direct investment flows and stocks (DAFFE) and on the economic activity of multinational firms (DSTI), in order to increase their compatibility as far as possible. Organisation of a joint workshop with the Working Party on Financial Statistics (DAFFE) concerning, as a first step, measurement issues relating to mergers and acquisitions. 5

6 13. While the Secretariat needs to play an important organising and co-ordinating role in this work, the expertise regarding the methodology and knowledge of how theory differs from practice resides with the delegates. Statistical work 14. Statistical work on globalisation indicators involves three aspects: 1) organising surveys for collecting basic data; 2) publishing and disseminating the databases; and 3) converting the statistics into indicators so as to improve the accessibility of the data to a wider cross-section of users. Collecting data on the activity of multinationals 15. Surveys of the activity of multinational firms are currently conducted by National Statistical Offices and the OECD assembles the national data through four questionnaires, two for the manufacturing industry and two for services. 1. Manufacturing industry (AFA database): (a) (i) Activity of foreign affiliates in the host country (inward investment) (annual survey). (ii) Activity of parent companies in investor countries (annual survey). (b) Activity of affiliates of national firms abroad (outward investment) (biennial survey). 2. Services sector (FATS database) (annual survey): (a) Activity of foreign affiliates in the host country. (b) (i) Activity of affiliates of national firms abroad (outward investment). (ii) Activity of parent companies in investor countries. 16. These data are available by sector (29 for manufacturing industries and 34 for services): they involve 18 variables for manufacturing industries 3, and five variables for services 4, and are also classed by country of origin and destination. 17. Among the short-term goals of the data collection effort are: To ensure better coverage and country participation (18 countries currently participate in the manufacturing industry surveys, and 19 in the services surveys). 3. The variables are the following: number of Enterprises/establishments, number of employees, production, turnover, value added, wages and salaries, R&D expenditure, number of researchers, gross fixed capital formation, total exports, total imports, intra-firm exports, intra-firm imports, gross operating surplus, technological payments, technological receipts, stock of FDI, capital under foreign influence. 4. The following variables every question for services: turnover (sales or production), value added, number of employees, exports and imports. 6

7 To extend the number of variables in the services sector. To improve coverage of the activity of parent companies. To improve comparability between data on affiliates and the national totals (problems with statistical units). To invite more countries to collect data on intra-firm trade. To obtain more data on the ultimate beneficiary owners (UBO). 18. The ability to reach these goals rests primarily with the delegates working within their own statistical agencies in co-ordination with the OECD Secretariat. 19. As a follow-up to the Manual, the role of the delegates to the Expert Group will be to: Promote the quantity, quality, comparability and timeliness of the National Statistical Offices (NSOs ) data collection efforts relating to the activity of multinational firms. This work would include promoting the use of common definitions and methodologies where practical. Exchange information among NSOs on best practices through presentations at the annual meetings on efforts to implement the Manual s recommendations. Modify the OECD publication Measuring Globalisation: the Role of Multinationals in OECD Economies by including the reference indicators proposed in the Manual. Promote the use of the OECD database through contacts with researchers in international organisations, national governments and academia. The Expert Group could be a forum for such a promotion. Data dissemination 20. Because they are new, OECD data on the activity of multinationals in Member countries are not widely known in government, academic circles or research centres. Currently, a large portion of the database is published every two years under the title, "Measuring Globalisation: the Role of Multinational Enterprises in OECD Economies", volume 1: Manufacturing Industries, volume 2: Services Sector. At the same time, an electronic version on CD-ROM is regularly updated and published each year. It will be important to explore other possibilities for making these data accessible to all users (following example of the United States Department of Commerce) and not just to those who are connected to the OLIS system. By and large this work is the responsibility of the OECD Secretariat although Delegates play an important role in helping to disseminate the data in their countries. Compilation of a publication of the Main Economic Globalisation Indicators of OECD Countries 21. In the framework of the Manual, a significant number of indicators of economic globalisation have been identified. The reference (core) indicators proposed in Chapter 1 of the Manual are now available for the majority of OECD countries and many of the indicators proposed in the thematic chapters are also available but have not been published and analysed together systematically. The proposed project 7

8 by the Secretariat intends to give a concrete vision of the Manual s proposals and recommendations through a publication of indicators which are available for most OECD countries covering the activity of multinational firms, the internationalisation of technology and some aspects of the globalisation of trade. This project will make three contributions. First, it will present for the first time a set of coherent and internationally comparable indicators illustrated by figures followed by short comments concerning all the above dimensions of globalisation. This work will provide a direct input into the 2003 STI Scoreboard. Second, the analysis and presentation of these indicators can identify new and important issues that could orient future analytical work. Third, some methodological work will be undertaken, in concert with CIBE project on benchmarking, which analyses the construction and sensitivity of composite indices of globalisation and/or competitiveness. These indicator projects will be undertaken by the Secretariat who will work with the delegates to the Expert Group seeking their input and review. Analytical studies 22. While the analytical work is a necessary compliment to the methodological and statistical work, the limited resources available to the working limit the number of projects that can be undertaken simultaneously. This section describes three projects that may be undertaken. While separate, they are described in a sequence which reflects a natural progression of building blocks where one module uses the results of the previous module to undertake increasingly complex economic analysis. This work will be conducted, resources permitting, by the Secretariat with possible assistance from outside expert consultants. Delegates will be invited to comment on the work, but will not per se be responsible for the actual analysis. This said, all of the projects depend on the fundamental methodological work, the data that are derived from these statistical methodologies and the indicators that are constructed from the data where the delegates play a key role. Structural change, economic performance and labour productivity in foreign affiliates and national firms: comparison of experience in OECD countries 23. The process of globalisation has become increasingly visible in the last two decades as direct investment flows and technology transfers have grown rapidly. Direct investment has become an important force driving industrial restructuring and economic integration. Local production by affiliates in host countries now greatly exceeds exports to those countries. Foreign affiliates thus contribute to the productivity and growth of host countries. They make significant technology transfers and they create high-skilled employment opportunities. 24. The purpose of this project is to examine the role of foreign affiliates in the host country, in terms of employment, productivity, innovation and trade, as well as systematically comparing the performances of foreign affiliates with those of national firms at the sectoral level. Labour productivity of foreign affiliates will be compared with that of national firms, at the sectoral level and by country of origin. Within the framework of the OECD s surveys on the activity of multinationals, data collection includes variables concerning production and/or turnover of subsidiaries under foreign control, employment, value added, wages, gross fixed capital formation, gross operating surplus, R&D expenditure, number of researchers, technological receipts and payments, imports and exports. All these variables are available at the sectoral level and by country of origin at least for the major investing countries and cover a relatively long period of time. 25. In general, labour productivity of foreign affiliates is higher than average national labour productivity, but in some sectors and for some countries of origin the contrary has been observed. This phenomenon deserves additional research into such things as barriers and regulations that may affect the 8

9 performance of foreign affiliates. Innovation will be analysed through the R&D activities of affiliates and their links with the activities of parent companies (technology transfers). Firms from some countries shift R&D activities along with production, while others prefer to produce locally under license without conducting R&D. The differences between countries will be identified, and attempts will be made to find explanatory factors. Finally, the role of affiliates in the trade of both investor countries and host countries will be explored and analysed. The export performance (propensity to export) of affiliates may differ depending on the sector, the investor country (country of origin) and the place where they are established (host country). This work should complement previous studies by the Secretariat 5, which showed that globalisation (trade and direct investment) had a positive effect on productivity. As was mentioned earlier, this project will rely largely on data contained in the AFA (Activity of Foreign Affiliates) and FATS (Foreign Affiliates Trade in Services) databases, but other databases could also be used. The International Spillovers of Science and Technology on Productivity and Economic Performance 26. The study will first aim at measuring the degree of internationalisation of technology in OECD countries (or technological openness of countries) using various indicators such as the activities of foreign affiliates (production, investment, R&D), especially in technology intensive sectors, foreign trade, technological receipts and payments and cross-border co-operation in R&D as reflected in patent files. The study will investigate the determinants of cross-country differences in their degree of internationalisation and its impact on innovation and economic performance, notably productivity. The analysis will examine the interaction between these various forms of technological exchange (complementarily/substitutability) as well. 27. An important aspect of this work will be to analyse the role of specialisation and the effect of the size of economies on innovative activity and the adoption of innovations diffused through international channels. The standard assumption is that smaller countries are more specialised and more internationalised. This will be tested and analysed for possible changes over time in the balance between the various channels. Lastly, the project will examine if there is a link between internationalisation and economic performance. Does internationalisation benefit to the performance of countries? Do certain patterns of internationalisation have a more positive impact than others? This project will be undertaken as a joint project for CIBE and the Committee on Science and Technology Policy (CSTP). The impact of multinationals on employment 28. A key policy question surrounding the role of multinational enterprises is their impact on jobs, skills and wages, both in the country of the parent and the affiliate. This is a very complex issue, but the availability of coherent data on the activity of multinational enterprises as well as complimentary work by other parts of the OECD on migration and specifically the international mobility of the highly skilled will provide important new insights. Building on a survey of the existing economic literature of the issue undertaken in 2000, the project will seek to look at the links between MNE job creation and displacement, the influence of MNEs as determinants of migration and mechanisms for the adjustment of supply and demand. This project will be undertaken in co-operation with OECD s Directorate for Education, Employment and Social Affairs (DEELSA). 5. Globalisation and industrial performance, [DSTI/IND(98)11]. 9

10 APPENDIX PRINCIPAL ANALYTICAL STUDIES PREPARED BY THE GROUP The Performance of Foreign Affiliates in OECD countries, OECD publication, Globalisation and Competitiveness: Relevant Indicators, STI Working Papers 1996/5. The Links between Foreign Direct Investment and International Trade, DSTI/EAS/IND/WP9(95)8. An Ownership-based disaggregation of the US current account, DSTI/EAS/IND/WP9(95)7. Intra-firm Trade: A Comparison between French and American Data, DSTI/EAS/IND/WP9(95)10. Aspects of the Globalisation of the Information Technology Industries, DSTI/EAS/IND/WP9(96)4. The Links between Foreign Direct Investment and Trade: Empirical Evidence for US and French industries, DSTI/EAS/IND/WP9(96)5. Internationalisation of R-D: Patterns and Trends, OECD publication, Impact of Japanese Overseas Business Activities on Japan s Domestic Economy (Japan-Min), DSTI/EAS/IND/SWP(97)17. The Globalisation of Industry in OECD Countries, STI Working Papers 1999/2. Trade Competition and Foreign Direct Investment: A New Assessment, DSTI/EAS/IND/SWP(98)9. Links between Direct Investment and Trade: Short- and Long-Term Effects, DSTI/EAS/IND/SWP(99)15. The Effects of Globalisation on Employment in the Industrialised Countries: A Review of the Existing Literature, DSTI/EAS/IND/SWP(2001)7. The different chapters of the Manual are classified in the methodological studies. 10