Problems Interpreting National Accounts in a Globalised Economy - PowerPoint PPT Presentation

Problems Interpreting National Accounts in a Globalised Economy – Ireland John FitzGerald AIECE, Brussels, 7 th November 2014

World Trade relative to World GDP 1.2 1 0.8 0.6 0.4 0.2 0 1970Q1 1975Q1 1980Q1 1985Q1 1990Q1 1995Q1 2000Q1 2005Q1 2010Q1

Imports Relative to Final Demand 0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 1991 1994 1997 2000 2003 2006 2009 2012 Ireland Germany Netherlands

Intermediate goods share of output 80 78 76 74 72 70 68 66 64 62 60 58 2004 2005 2006 2007 2008 2009 2010 2011 2012 Netherlands Ireland Germany Sweden

Factor Shares, Manufacturing, Ireland Factor Shares, High tech Manufacturing 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1973A 1978A 1983A 1988A 1993A 1998A 2003A 2008A Materials Labour Capital

Problems with Irish national accounts • 5 problem areas in interpreting Irish accounts 1. Patent Cliff 2. IT Sector GVA 3. Redomiciled Plcs 4. “Exports” of goods produced abroad 5. Aircraft leasing

“Patent Cliff” • Pharmaceutical sector 11% of Irish GVA • Drugs run out of patent in 2012 • E.g. Pfizer’s Lipitor : loss of $5.5 billion revenue – 2.5% of Irish GDP • A volume change? Now a price change? – Revisions to information from firms • Affects GDP but NOT GNP/GNI – Foreign owned – affects profits in Ireland – Profits accrue to foreign owners • Previously looked like a big effect, now looks smaller

IT Sector • IT sector (NACE 58-63) 10% of Irish GVA – Largely foreign owned • Moving profits abroad by increasing payments for royalties and licenses in 2013. – Reduces GVA • In 2013 volume of GVA in sector: – Fell by 57% or 2.3 percentage points of GDP – However, wage bill rose by 4% • Effect on GNP/GNI small, maybe even positive

Redomiciled PLCs • Headquartered in Ireland but no GVA – Liable for tax in UK etc. – Fraction of profits paid to owners abroad as dividends – Do NOT accrue the profits to owners, unlike manufacturing – Big effect on GNP/GNI but not GDP, 2008-12 – Also on current account. • Also an issue in the Netherlands accounts

Growth Rate, GDP & GNP adjusted 10 8 6 4 2 0 -2 -4 -6 -8 -10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 GDP GNP GNP adjusted for Redomiciled Plcs

Treatment of goods produced abroad • Pharmaceutical powder to be turned into tablets in Ireland – Owned abroad. Included gross in trade stats but not in national accounts. Little domestic GVA • Goods produced and sold abroad for companies in Ireland (mainly foreign owned) – Included in national accounts exports – Adds to GVA (but not necessarily to GNP/GNI) • Also affects US productivity

Aircraft Leasing • Until now, treated net. Next year, treated gross • Firms in Ireland own 19% of world aircraft – Stock of aircraft worth 70% of Irish GDP • Will affect the current account – Imports of aircraft offset against investment – Leasing income – service export, 4.3% of GDP. – Leasing income currently excludes depreciation – Including depreciation will add to GDP (but not NDP) • Limited domestic inputs: little impact on economy – However, will have very large gross flows so could be seriously misleading

Solutions? • Need additional data – satellite accounts – Problem arises from residence basis & definition – GDP v GNP/GNI – difference important – What additional data would make things clearer? • Concentrate on current account of BOP – Not gross flows of exports and imports • Concentrate on output side – GNP/GNI by sector in which it arises – Need additional information – Separate foreign and domestic firms • Redomiciled plcs – why not accrue? • Other Problems, Other solutions?