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63rd SPC and 93rd DGINS Conference 19–21 September 2007 Budapest, Hungary Globalisation and economic statistics: a „multifunctional” user’s perspective Gábor Oblath National Bank of Hungary Monetary Council Why a „multifunctional” user’ view – personal background and motivations of the topics to be discussed • Relationship with economic statistics/statisticians – Applied macroeconomic research and analysis: • Former: short and longer-run macroeconomic analysis and projection • Technical cooperation with the Hungarian CSO (Consistency of NA – in particular, data on external trade) • Macroeconomic research (e.g. real convergence) – Monetary policy: decisions crucially depend on the understanding and careful interpretation of macroeconomic statistics (e.g. change in GDP – output-gap; BOPdata – risk premium) – importance of expectations – Education: applied macroeconomic analysis – in particular, handling and interpreting macro-data • economists must understand the logic („architecture”) of macro-statistics; • search for developments behind headline indicators; • even if dissatisfied with official statistics, economists should never try to „invent” statistics (counter-example: „dark matter”) • Member (former chair) of the Economic Section of the Hungarian Statistical Society – sympathize with statisticians: – recognise difficulties stemming from the conflicting trends of globalisation Outline • Conflicting trends within globalisation: implications for economic statistics • Two macroeconomic-statistical issues related to globalisation Measuring, interpreting and comparing • „real income” of nations (real convergence) • the relative size of external imbalances – need for caution in reading the headline figures; but – no need to invent alternative BOP-statistics – a critique of the notion of a „dark matter” in the current account of nations • Conclusion: need for closer cooperation between statisticians and economists I. Globalisation and economic statistics: contrasting trends • Globalisation: increasing openness – intensified interaction and interdependence among (economic units of) nations. Implications: • On the one hand: the boundaries between the „home” vs. „external” economy (ROW) are fading – – – – – multinational companies, migration, trade in services (innovations), off-shore companies etc., etc. „residents”/”non-residents”? • On the other hand: increasing importance of international – transactions („real” and financial flows) – assets (equity and debt stocks) on the home (national) economy Implications for statistics • Decreasing importance of national borders from a microeconomic point of view the perspective of economic agents (household and corporate sector) – suppliers of elementary data moreover: incentives to obscure legal borders (e.g. tax „optimisation”) • Increasing importance of cross-border transactions from a macroeconomic perspective government policy international organisations economic analysts investors Users of macro-statistics Problems for „producers” of statistics Economic statisticians under double pressure: – increasing difficulties involved in collecting, while – increasing importance of providing accurate/comparable data on cross-border transactions assets/liabilities Globalisation: problems with users of statistics • In a globalised world-economy, analysts and market participants – interpret national developments in international comparison – categorise/group and assess countries according to very few and very simple (headline) indicators („big picture”) • Implication for statisticians: importance of – conceptual and statistical accuracy – common international standards: comparability of national data • Implication for both statisticians and economists: – „education” of market participants – more information and increased focus on statistics/indicators enabling finer analysis Globalisation and economic statistics – a personal experience Globalisation of statistical sources – profound change due to the internet (a major symbol and driving force of globalisation) – Freely accessible huge international databases (e.g.: Eurostat, AMECO, Groningen, EU KLEMS, PWT, [OECD]) – On-line access to several national statistics in user-friendly format – However: • several inconsistencies between – national and international databases; – within international databases – among international databases • more coordination would be helpful II. Economic and statistical issues related to globalisation 1. „Real” economic/income convergence 2. The size of external imbalances a) Problems with the CA/GDP indicator b) An inadequate reaction to statistical problems due to globalisation: a critique of the notion of „dark matter” 1. Comparison of macroeconomic „performance” in a global context Levels of development („income levels”) and growth rates in international comparisons – Relative „income” level: economists’ shorthand for GDP/capita at PPP; but: • Output: per capita vs. per person employed (per hour worked) • GDP not a measure of „real” income – alternative measures – Growth rates („catching up”): similar problems: Interpretation of „income convergence” The meaning of „real income” in international comparison (output vs. income; level vs. change) Output: GDP at PPP • Per person • Per employed person • Per hour worked Income: Change • GDP? • RGDI (real GDP corrected for the change in the terms of trade= implicit income transfers from/to RoW) • GNI = GDP+NFY • GNDI =GNI+NFTc Related to the current account (CA= GNDI-C-I) S • GNDI + net capital transfers - Basic macroeconomic • RGNI concepts without a name • RGNDI - Related to the fundamental concept of macroeconomic balance, i.e.: • RGNDI + net real capital transfers net lending (NL=CA+KA): „Real income” growth in international comparison: two aspects of income growth – more relevant in a globalised world • A neglected aspect of „income convergence”: the role of the terms of trade*/ • Recent differences in real growth rates between – – – – GDP GNI, GNDI GNDI+cap.transfers**/ (does not exist in SNA/ESA) • No attempt to combine the two; the major goal is illustration of some neglected aspects */based on AMECO **/based on Eurostat (A) RGDI/capita (change) real domestic income – the actual indicator of incomegrowth (thus of income-convergence) • Change in real GDP: represents change in the volume of output • Change in RGDI: change in the real income of a country (output corrected for the impact of changes in the terms of trade – i.e., effect of „trading gain or loss”) [RGDI= (GDPt/Pgdp +T) /GDPt-1)]*/ • Is it really „real”? – are foreign trade price indices accurate? – transfer pricing ? • Perhaps: measurement problems of Px and Pm (especially price index of services), but if so: – opposite measurement problems in net exports (volumes) – RGDI: essential indicator of (change in) macroeconomic income – by definition, its „level” cannot be interpreted at current prices • All in all: if ToT shows a trend, RGDI is relevant for income growth */T=(X-M)/Pxm – (X/Px – M/Pm) Cumulative differences in RGDI and GDP growth rates since 1995 0,30 Bulgaria Czech Republic Estonia Latvia Lithuania Hungary 0,25 LIT 0,20 Poland Romania Slovenia Slovakia 0,15 RO 0,10 CZ 0,05 0,00 SK -0,05 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: Eurostat, AMECO -10% Finland Sweden Slovakia Belgium Hungary Ireland Germany Poland Austria France Latvia Italy Cyprus 10% Portugal 20% EU-27 15% Malta Slovenia Greece United Kingdom Spain Netherlands Estonia Denmark Czech Republic Bulgaria Romania Lithuania Cumulative difference between RGDI and GDP growth and annual growth rate of GDP: 1995-2006 25% Percentage points Cum diff GDI-GDP GDP growth rate percent 5% 0% -5% The significance of changes in the terms of trade: number of years (at average GDP-growth) corresponding to the cumulative difference between RGDI and GDP: 1995-2006 5 4 3 2 1 0 -1 -2 -3 Sweden Finland Belgium Germany Slovakia Hungary Austria Ireland Poland France Italy Portugal Cyprus Latvia Malta Slovenia Greece Estonia Spain United Kingdom Netherlands Denmark Czech Republic Lithuania Bulgaria Romania Per capita GDP and RGDI relative levels in 2006 (EU15=100) 80 75 SI CZ 70 Per capita GDP at 1995 PPS and RGDI at 1995 PPS 65 95_PPS EE GDI_95PPS 60 HU 55 LIT LA 50 SK PO 45 40 BU 35 RO Per capita GDP at 2006 PPS 30 30 35 40 45 50 55 60 65 70 75 Two points: 1) differences between constant (1995) and current (06) PPS levels 2) differences between RGDI and GDP levels at prices of 1995 80 GDP/cap (PPS) in 1995 (x) and in 2006; RGDI in 2006 at 1995 PPS (y) (EU-15=100) 80 SI CZ 70 2006 GDP/cap RGDI/cap EE 60 HU LIT SK LA 50 2006_PPS PO GDI_95PPS 40 RO BU 30 GDP/cap (PPS) 1995 20 20 30 40 50 60 70 80 Comparison of GDP and RGDI convergence of CEE-10; 1995-2006 GDP/cap 95 GDP/cap 06 RGDI/cap 06 27,9 33,2 35,8 107,6 Average Number of annual speed years of of GDP/cap convergence*/ convergence to fill the RGDIConv Conv GDP gap **/ GDP GDI 1,6% 2,3% 4,5 63,1 71,0 75,6 106,4 1,1% 1,7% 5,7 31,1 27,0 30,0 45,4 36,7 27,2 61,6 40,0 59,6 51,8 51,5 59,6 48,6 31,3 77,1 52,4 60,9 51,7 57,6 58,4 48,2 34,4 77,7 50,8 102,1 99,9 111,8 97,9 99,2 110,1 100,8 97,0 6,1% 6,1% 5,0% 2,5% 2,6% 1,3% 2,1% 2,5% 6,3% 6,1% 6,1% 2,3% 2,5% 2,2% 2,1% 2,2% 0,4 0,0 2,3 -0,9 -0,3 7,6 0,4 -1,3 EU15=100 Bulgaria Czech Republic Estonia Latvia Lithuania Hungary Poland Romania Slovenia Slovakia RGDI_06/ GDP_06 */ log(Y06/Y95)/t; where Y= Yi/Yeu15 **/ log[(RGDI_06)/(GDP_06)]/(Conv_GDP) (B) The role of capital transfers • GNDI + capital transfers: not an indicator of „income”, but: • in less-developed EU-countries (receiving capitaltransfers from EU-funds): a fundamental indicator of disposable resources; • In these countries: GNDI [thus, gross savings (S) and the CA (=S-I) is a misleading indicator (asymmetry): – current contributions to the EU-budget decrease GNDI (S), but – no official macroeconomic aggregate indicating the impact of capital transfers from the EU to the recipient country • Need to define/quantify „non-official” macroeconomic aggregates (statistical indicators based on official statistics) for macro-analysis, e.g. GNDI + capital transfers (change at constant prices) • Questions related to the „adequate” volume index of national income and disposable national resources • Deflator of – Net factor income (GDP or DE deflator) – Net current transfers (GDP or DE deflator) – Net capital transfers (GDP or GCF deflator) GDP, GNI, GNDI and GNDI+captr. recent annual average volume changes: an illustration (CZ, HU, PL: 2004-2006) CZ HU 6,7% 4,2% 6,6% 4,1% 6,5% 4,1% 6,4% 4,0% 6,3% 4,0% 6,2% 3,9% 6,1% 6,0% 3,9% 5,9% 3,8% 5,8% 3,8% GDP GNI GNDI GNDI+captr GDP GNI GNDI GNDI+captr GNDI GNDI+captr PL • Different „levels” in growth rates (CZ: >6%; PL 5%; HU 4%), • different national patterns, but • a common feature in all 3 countries: GNDI+captr. growth > than „headline” indicators of economic growth (GDP/GNI) 5,6% 5,4% 5,2% 5,0% 4,8% 4,6% 4,4% GDP GNI Source: own calculations based on Eurostat Alternative indicators of „income convergence”: some lessons • Globalisation increase in openness (higher X/GDP and M/GDP ratios) – even small changes in ToT (Px/Pm) entail – large/increasing changes in real income [RGDI (=GDP/Pgpd +T)]; – this aspect of actual „income-convergence” (its cumulative impact) is mostly neglected (example: CZ vs. SK) • Globalisation increasing stocks of NFA/GDP; – increasing net income flows (recognised by official statistics): GNI (GNP) • Within EU increasing role of unrequited transfers (for NMS) – Current transfers (minor part): (recognised by official statistics): GNDI – Capital transfers (larger part): economists should reconstruct (GNDI+captr) II. Economic and statistical issues related to globalisation 1. „Real” economic/income convergence 2. The size of external imbalances a) Problems with the CA/GDP indicator b) An inadequate reaction to statistical problems due to globalisation: a critique of the notion of „dark matter” II/a. Interpreting and comparing external imbalances Realated to the problem of measuring and interpreting levels of income/development, i.e: – disposable income vs. disposable resources (GNDI or GNDI+capital transfers?) – The general problem of international comparisons: implications of differences in the level and structure of national prices Interpreting external imbalances (cont’) • • • • Globalisation involves increasing cross-country gross and net capital flows Net capital flows involve external imbalances Lazy (too busy) economic analysts observe (internationally compare) a single indicator of external (im-)balance: the current account/GDP ratio (CA/GDP) This is supported by rules of thumb: – • if CA/GDP above -(3-5)%: dangerous However, this „wisdom” is misleading; there are problems with both the – numerator (CA) and the – denominator (GDP) • We focus at the economic-statistical problems of this popular indicator • There are some more fundamental economic problems with the CA/GDP ratio as well – these are not covered here, but a hint: – – How deficits are financed (debt or FDI) Domestic counterpart: • private vs. public • consumption or investment Interpreting external imbalances: problems with the numerator of CA/GDP 1. Relevance of the „capital account” of the BOP (involving capital transfers) 2. Interpretation of reinvested earnings 3. Interpreting changes in NFA (capital gains/losses on NFA) 4. NEO Problems with the numerator: the relevance of CA+KA (1) • Several analysts missed the change in the concepts of the BOP: Present structure • • • • • Current account (CA) Capital account (KA) [ former capital account] Financial account (= former capital account) NEO dR Net financing requirement • A practical problem: for less developed countries of the EU: – transfers from the EU: (mostly) in the KA – transfers to the EU: in the CA Problems with the numerator (1): CA and KA+CA in % of GDP (average of 2000-2005) 0% -1% -2% -3% -4% -5% -6% -7% -8% CA/GDP -9% (CA+KA)/GDP -10% CZ EST Source: Eurostat HU PL SK GR ESP PT IRL USA CA vs. CA+KA (in % of GDP): CZ, HU, PL HU CZ 0% 0% -1% -1% -2% -2% -3% -3% -4% -4% -5% -5% CA+KA -6% CA+KA -6% CA CA -7% -7% 2005 2005 2006 2006 PL 0,0% The role of capital transfers is increasing; most visibly for Poland -0,5% -1,0% -1,5% -2,0% CA+KA -2,5% CA -3,0% -3,5% -4,0% 2005 2006 Problems of the numerator (2): reinvested earnings – a special expenditure • FDI income consists of two parts: – repatriated vs. – reinvested earnings • Reinvested: recorded as „outflow” in the CA, but – no actual transaction takes place; – remains in the country (a potential source of investment); – „finances” itself: same item in the current and financial account (does not affect the foreign exchange market) • Should be treated differently Problems of the numerator (2): reinvested earnings in % of GDP (average of 2000-2005) 0% -2% -4% -6% CA/GDP -8% (CA+KA)/GDP (CA+KA+IRE)/GDP -10% (CA+KA+NRE)/GDP -12% CZ EST HU PL ESP PT USA Problems with the denomiator of the CA/GDP ratio • According to the received wisdom: the denominator of the CA/GDP-ratio „standardizes” the size of external balances – it corrects for differences in the size of national economies • This notion is mistaken: – CA measured at international prices, – GDP measured at domestic prices • The relative price level of GDP (PPP/exchange rate) is an increasing function of the level of real development (GDP/cap at PPP): Balassa-Samuelson effect (traded vs. non traded prices) GDP/capita and relative GDP price levels (average 2000-2005) 100 CY GDP relative price 90 GR 80 ES PT 70 MT 60 SL EE LV HU PL 50 LT CZ SK 40 40 50 60 70 Per capita GDP (PPS) 80 90 100 Problems with the denomiator of the CA/GDP ratio (cont.) • In less developed countries – because of the low level of non-traded (service) prices, the CA/GDP overstates the relative size of external imbalances – E.g.: extremely low relative price of collective/government services in NMS of EU has no implication whatsoever for the relative size of external imbalances • How to handle the problem? – CA/GDP(PPP) – CA/foreign receipts • CA/Xgs • CA/CA_total receipts Relative GDP price levels and the relative price level of goods, total services and government services (average of 2000-2005) 100 GR 90 MT 80 LT LV 70 HU ES CY SL PT EE SK CZ PL 60 Goods 50 Services 40 Gov. services 30 GDP relative price level 20 40 50 60 70 80 90 CA+KA in % of GDP, exports of goods and services and total current revenues (average of 2000-2005) 0% -5% -10% -15% (CA+KA)/GDP (CA+KA)/Xgs -20% (CA+KA)/CFR -25% -30% CZ EST HU PL SK GR ESP PT CA+KA in % of GDP at current prices and GDP at PPP (average of 2000-2005) 0% -1% -2% -3% -4% -5% -6% -7% (CA+KA)/GDP -8% (CA+KA)/GDP_PPP -9% CZ EST HU PL SK GR ESP PT IRL USA Summing up problems of international comparison of external imbalances • External imbalances are natural in a globalised world economy • However: sudden shifts in „risk appetite” perception of the size of external imbalances • The standard indicator (CA/GDP) - suffers from (at least) two weaknesses – CA: economically unsound indicator of external imbalance; relevance of • KA • Reinvested earnings – GDP (at current prices) does not correct for differences in the size of economies • However, if CA/GDP applied by many analysts, it effects perceptions of the public it may become a driving force of expectations II. Economic and statistical issues related to globalisation 1. „Real” economic/income convergence 2. The size of external imbalances a) Problems with the CA/GDP indicator b) An inadequate reaction to statistical problems due to globalisation: a critique of the notion of „dark matter” The notion of „dark-matter” (DM) in the BOP of nations: claims • H-S*/ claim: BOP statistics are false: US has no CA deficit • Why? Because US NII continuously positive NFA and ΔNFA (CA) also „has to be” positive • „Implied” CA balance reconstructed in two steps – Capitalising NII by an arbitrary 5% (P/E: 20) – Annual change in capitalised NII „implied” CA • Difference between actual and implied CA: exports of „dark matter” (intangible capital) */R. Hausmann - F. Sturzenegger: Global imbalances or bad accounting? The missing dark matter in the wealth of nations (May, 2006): http://200.32.4.58/~fsturzen/dark_matter_may06.pdf US net international investment income (NII = net profits and interest) (million USD) 70 000 60 000 50 000 40 000 30 000 20 000 10 000 0 90 9 91 9 92 9 93 9 94 9 95 9 96 9 97 9 98 9 99 0 00 0 01 0 02 0 03 0 04 0 05 0 06 19 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 US: CA and two components: net exports (NX) and net investment income (NII) (% of GDP) 1% 0% -1% -2% -3% -4% -5% NII/GDP CA/GDP NX/GDP -6% -7% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 US: net investment income (NII), the CA, and NFA (at current cost and market value) in % of GDP 2% 0% -2% -4% -6% -8% -10% -12% NII/GDP CA/GDP NFA_market/GDP NFA_curcost/GDP -14% -16% -18% -20% -22% -24% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 The world according Hausmann-Surzenegger Implication: no global imbalances Rate of return on market value of US foreign assets (FA) and liabilities (FL) 9% 8% 7% 6% 5% 4% iFL_market 3% iFA_market 06 20 05 20 04 20 03 20 02 20 01 20 00 20 99 19 98 19 97 19 96 19 95 19 94 19 93 19 92 19 91 19 90 19 19 89 2% The notion of „dark-matter”: some critical remarks in defence of statistics • If BOP statistics inaccurate: why just NII right, if both CA and NFA wrong • Several plausible/relevant explanations for differences in rates of return on FA and FL: no need to „invent” new BOP statistics • Dangerous precedent: – if your story/theory does not fit the facts – or statistics (apparently or actually) contradict one another – you can simply construct data corresponding to your preferred interpretation • Having said this, – exports and imports of intangible capital (not covered by statistics) is quite possible under conditions of globalisation, – identifying and measuring it – constitutes a major challenge for both economists and statisticians Globalisation and economic statistics: some conclusions • Need for cooperation between economists and statisticians • Education of the public and professional users of statistics: common task • Economists should be – more tolerant and be aware of the difficulties of supplying accurate statistics in the era of globalisation; – should express their dissatisfaction with statistics in constructive forms • Statisticians could be more open – to criticisms regarding inconsistencies, – to suggestions regarding • the importance of potential un- (or -mis-) recorded aspects of economic activity (e.g. intangible capital) • publishing non-traditional indicators of economic development and external balances – in revealing their specific problems related to the accuracy of statistics