![]() | |||||||||
HOME | SN-BRIEFS |
SYSTEM OVERVIEW |
EFFECTIVE MANAGEMENT |
PROGRESS PERFORMANCE |
PROBLEMS POSSIBILITIES |
STATE CAPITALS |
FLOW ACTIVITIES |
FLOW ACTORS |
PETER BURGESS |
SiteNav | SitNav (0) | SitNav (1) | SitNav (2) | SitNav (3) | SitNav (4) | SitNav (5) | SitNav (6) | SitNav (7) | SitNav (8) |
Date: 2024-08-16 Page is: DBtxt001.php txt00001385 |
Metrics |
COMMENTARY |
Exports to Mars Official statistics probably exaggerate global current-account imbalances ECONOMISTS are constantly urging governments to adopt policies that would reduce global imbalances—which, in crude terms, means that China should slash its current-account surplus and America its deficit. Yet they ignore the biggest imbalance of all: the current-account surplus that planet Earth appears to run with extraterrestrials. In theory, countries’ current-account balances should all sum to zero because one country’s export is another’s import. However, if you add up all countries’ reported current-account transactions (exports minus imports of goods and services, net investment income, workers’ remittances and other transfers), the world exported $331 billion more than it imported in 2010, according to the IMF’s World Economic Outlook. The fund forecasts that the global current-account surplus will rise to almost $700 billion by 2014. Are aliens buying Louis Vuitton handbags? Are little green men bagging the best sunbeds by the hotel pool? The more down-to-earth explanation is that the global surplus reflects statistical errors. Either the current-account deficits of countries such as America are being understated or the surpluses of countries like China are being overstated, and by a rising amount. The puzzle is compounded by the fact that the world ran a persistent current-account deficit for at least three decades until 2005. In 2001 the deficit was equivalent to 0.5% of global GDP, but by next year the IMF’s forecasts imply that the surplus could hit a record 0.8% of GDP (see left-hand chart). That turnaround exceeds the increase in China’s current-account surplus over the same period. Indeed, the global “surplus” now exceeds China’s. A statistical black hole of this scale raises questions about the IMF’s forecast that global external imbalances will rise over the coming years. It expects China’s current-account surplus to double in dollar terms between 2010 and 2014. A forecast increase in China’s surplus ought to mean a bigger deficit elsewhere. Yet the fund also expects the rest of the world combined to run a rising surplus (this includes a big drop in America’s deficit). What is going on? Past studies by the IMF concluded that the global deficit in the 1980s and 1990s was largely due to the underreporting of foreign-investment income by rich countries and the under-recording of freight receipts. But over the past decade, the “deficit” on investment income has diminished, partly because governments have cracked down on tax evasion and partly because interest rates have fallen. An IMF study in 2009, by Marco Terrones and Thomas Helbling, concluded that the biggest cause of the switch from a global current-account deficit to a surplus was mismeasurement of services. International trade in financial and legal services, insurance and consultancy is tricky to measure, and exporters are easier to identify than importers. For instance, law firms involved in cross-border deals are usually quite large, whereas most clients’ spending on their services is relatively small (though it may not seem that way to the clients). Exporters are thus more likely than importers to exceed the threshold for inclusion in the surveys used to track trade in services. Since that report, however, measurement errors in merchandise trade have jumped and now match those in services (see right-hand chart). Transport lags can cause annual global exports to exceed imports when trade is growing rapidly because goods in transit in December are counted as exports by China, say, but are not counted as imports by America until January. But this cannot account for the scale of the recent rise in the statistical discrepancy because growth in trade has slowed since 2007. Another possible explanation posits that the surge in the global discrepancy broadly coincides with both the explosion in vertically integrated businesses, where firms locate different stages of production in different countries, and the increase in China’s trade. A rising share of trade consists of parts, semi-finished goods and final products moving across borders between parent companies and their foreign subsidiaries. In 2009 intra-firm trade accounted for half of America’s imports. Transfer pricing used by multinationals to shift profits around the globe may distort trade figures. Much of this mispricing of exports and imports should cancel out, but probably not all. More science, less fiction Overinvoicing of imports and underinvoicing of exports by American multinationals trying to reduce their tax bills would mean that America’s true current-account deficit is smaller than officially reported. That would increase, not reduce, the global discrepancy. But under- or overinvoicing of trade within international firms is also used to dodge capital controls. A decade ago firms in emerging economies often reported exports at less than their value or imports at more, to shift money out of a country like China. In recent years, however, China’s booming economy and the expected appreciation of the yuan mean that exporters now have more incentive to overinvoice exports in order to bring money into the country. If so, official figures may overstate the surplus of China and other emerging economies. To understand whether global imbalances really are widening or not, you need to know where the errors lie. Rich countries’ trade statistics tend to be more reliable than those of emerging economies, where data collection is less developed. If more of the mismeasurement is in the emerging world, the total current-account surplus of emerging markets is probably much smaller than that officially recorded. Zhiwei Zhang, an economist at Nomura, estimates that measurement errors caused by underrecorded profits of foreign firms and capital flows disguised as trade flows may have inflated China’s current-account surplus by 3-4 percentage points (last year’s surplus was 5% of GDP). The good news is that international concerns about global imbalances may be much less pressing than many think. The bad news is that conventional balance-of-payments measures are clearly less reliable in a world of rising intra-firm trade and complex supply chains. That matters because dodgy statistics lead to policy mistakes. Governments should clean the figures up.
Economics focus ... Exports to Mars ... Official statistics probably exaggerate global current-account imbalances Readers' comments SunT Nov 10th 2011 17:20 GMT One price you pay for rampant fraud is loss of confidence in institutions, whether it's banks, stock markets, or government. But reducing deception in China would require a fundamental shift in thinking about power and values, and such shifts don't happen easily. Maybe a run on China's banks or more generalized capital flight will facilitate such a shift, but I'm not holding my breath. peopleneedperspective Nov 11th 2011 3:12 GMT I was in a UNSTATs conference for the Balance of Payments calculations a few years back for the 'services' component in the Current Account. I think, all the participants there knew less going out then going in dumaiu Nov 14th 2011 11:01 GMT Its the (black) economy, stupid! obenskik Nov 14th 2011 13:14 GMT You missed the biggest cypher of all, the black hole known as war were millions of tons of materiel of every description can be exported and disappear without a trace. blackrider Nov 16th 2011 13:59 GMT In my opinion, author misses the point by large, especially when he writes about the reasons of discrepancies in commodity-trade statistics. Answer to these huge discrepancies is largely a diminishing role of customs services and regulations throughout the world as a result of a massive push towards 'global free trade' of which this paper is also an advocate. Exports from global commodities powerhouses like China and India are being massively chanelled through free zones or ports of Honkong, Singapore or Dubai hiding true origin of the goods and significantly lowering the true value of a transaction in the process so as to save up on taxes when importing these goods into the markets of the developed economies like EU or USA. Customs simply do not have enough physical power/legal tools to control this traffic anymore. Hence, while container exported from China might get properly recorded in export statistics of China it could potentially never show up in statistics of importing country or to appear there with artificially lowered value of goods. Therefore here we should be speaking not so much about the Marsian involvement but gigantic extent of customs fraud which also deprives importing countries from significant amount of their tax revenue (which could be quite handy to have especially during these difficult times,no?). Amitrajya Nov 16th 2011 18:19 GMT Also partly caused by currency fluctuations compounding the time lag of accounting for the export/import. saMGyEgQ7f Nov 17th 2011 4:53 GMT Other commenters all have good points. There is however another tax situation for certain US headquartered companies the author doesn't recognize. Many large companies that derive main revenues from components, say electronics, have shifted the bulk of manufacturing, purchsing, and related overheads to China or other low cost countries. In addition, in many cases the sales are now in Asia as the end consumer or industrial goods these components go into are also made in Asia. This creates a situation where such companies have large losses in the United States, and therefore are incentivized to overstate exports from the US and understate imports to move profit to the US rather than away from it, as such profits may be essentially tax free. These sorts of movements have dramtically increased over the same period the author discusses, which would offset the author's assumption that other US companies are doing the opposite. AALOKA Nov 17th 2011 10:35 GMT These are the figures which are made to make the black money move through countries. The money gained in bribes is huge across the world and this money is typically stored outside of the country in which it is earned. When the money has to be brought back in the form of white money to be used by the politicians or other black money hoarders, they use the export route. As mentioned in the article, there should be less incentives due to taxation of the goods but when there are no goods and fake bills to bring payments, this small amount of tax does not matter. This helps the black money hoarded abroad to be brought into the country paying minimal taxes and vice-versa. Though my point needs more statistical figures, to be proved, it stands empirically correct based on the article. Stats Geek Nov 18th 2011 0:45 GMT Not convinced the black economy, bribery and corruption are necessarily the recording issue. True, they are likely to be unmeasured by the system that looks at an individual country's economic activity (eg GDP), but here we are talking about it not appearing in one countries balance of payments statistics yet appearing in another's. I would imagine that one reason a person with criminal proceeds in one country is most likely to export them to a country where they are unlikely to lose them due to competing crminal activity. So it would not be recorded as an home country debit, but very likely receiving country credit. Which means I would expect imports to exceed exports. It is most likely to difficulty of converting BPM5, the current balance of payment standard, into practical data collection methods. EDmqGwRABM Nov 19th 2011 12:45 GMT This has already been conclusively analysed and solved in the seminal work by Michael J. Koop et al. 'De oeconomia intergalactica: Von Schnellen Volkswirtschaften, kosmischen Handelshemmnissen und extraterrestrischer Kapitalflucht' (On Fast Economies, Cosmic Barriers to Trade, and Extraterrestrial Capital Flight). ISBN 3922305407 dammitwhy Nov 20th 2011 6:17 GMT They spent the money on holes to put the money in. guest-wllijee Nov 20th 2011 7:01 GMT Doesn't this suggest that accounting and economics are hardly sciences and are more humanities disciplines? Should economists take this as a warning that their field is too inexact to depend upon completely? |
Economics focus ... from the print edition
Nov 12th 2011 |
The text being discussed is available at http://www.economist.com/node/21538100 |
SITE COUNT< Blog Counters Reset to zero January 20, 2015 | TrueValueMetrics (TVM) is an Open Source / Open Knowledge initiative. It has been funded by family and friends. TVM is a 'big idea' that has the potential to be a game changer. The goal is for it to remain an open access initiative. |
WE WANT TO MAINTAIN AN OPEN KNOWLEDGE MODEL | A MODEST DONATION WILL HELP MAKE THAT HAPPEN | |
The information on this website may only be used for socio-enviro-economic performance analysis, education and limited low profit purposes
Copyright © 2005-2021 Peter Burgess. All rights reserved. |