If a country is worried about the integrity of another country's economic statistics, is there a formal way to check? An audit mechanism?
Over the past 100 years, we have gone from a world where Canadians were growing produce and hauling it to market behind a team of horses, to a complex, interwoven world where companies seem to have no borders. Deals are made on the Internet, products and services come and go in a flash, economies are more connected both financially and economically, and production is fragmented across the globe.
In this modern context, how do statisticians ensure complete coverage of economic activities? How do they measure the relative national contributions to activities spread across a global production-value chain, when five or six countries might be involved in the development, parts, assembly and marketing of a product? How do they properly categorize factoryless goods producers—firms that handle every part of making their products except the actual fabrication? These are some of the new challenges facing statistical agencies.
“There is no way that you can effectively understand the domestic economy without understanding the global economy,” says Patrick O’Hagan, Director of International Accounts and Trade Division. “We have to think more broadly about the impacts on our suite of economic statistics to ensure that we can meet the current and emerging measurement and relevance challenges. This will avoid being surprised by, say, a substantial change in an industry here or an industry there as production is reorganized.”
Fragmented global market and interconnectedness
Tracking fragmented global production and global markets is important because economies are now so interconnected. While globalization may bring efficiencies and opportunities on the world stage, it has been argued that it also brings increased international exposure and risk. These changes are reflected in both economic events and financial markets. The global recession, precipitated by the financial crisis that began in 2007, was a reminder of how interlinked international financial markets have become, and the G-20 Data Gaps Initiative, led by the International Monetary Fund, was created to better understand and measure this interconnectedness.
While the costs and benefits of globalization are left for academics and policy makers to assess, there is no question that economic changes and adjustments are ongoing. In Canada, the manufacturing sector has seen a decline, partly reflecting a shift to production activities offshore. At the same time, companies headquartered elsewhere have flowed investments into Canada.
So what does this mean to economic statistics? “The good news is that there is in principle no impact on some of our most important indicators, such as Gross Domestic Product and net trade. The level of Gross Domestic Product should be unchanged as a result of globalization,” Mr. O’Hagan says.
But there are other consequences. Because the underlying composition of the economy continues to change, it is more complex to measure the subcomponents—industries and commodities—across the various data sources. As one example, cross-border manufacturing or processing services are treated as purchases or sales of services in manufacturing surveys, but as imports of goods in the merchandise trade surveys. As another example, what is the appropriate classification of a factoryless goods producer—in manufacturing or in some other industry? Notably, global production chains can also affect the measurement of intellectual property, research and development, foreign direct investment, and cross-border income flows.
Statistics Canada is a committed player in globalization research, working closely on a number of fronts with international agencies (e.g., United Nations, Organisation for Economic Co-operation and Development and the International Monetary Fund) in developing new concepts and best measurement practices to ensure that data are accurate, relevant and internationally comparable. “The best that you can do is position yourself to adapt to change, and focus on developing statistics that remain as relevant as the measures that we have now,” Mr. O’Hagan says.
Statistical agencies in all countries are working on the myriad issues associated with globalization. Here are some key Statistics Canada initiatives to address globalization.
Statistics Canada has established a committee on globalization to provide guidance and coordination for the implementation of required changes to the economic statistics program. This group is currently developing Statistics Canada’s position regarding the classification of factoryless goods producers and their incidence within the Canadian economy, assessing measurement challenges to adjust for cross-border processing services and global distribution channels, and reviewing the expansion of statistics related to multinational enterprises.
This work will ensure that the changing nature of the way in which economic agents operate is properly reflected in the economic statistics program.
International trade and international accounts
A sign of the times is the creation of the International Accounts and Trade Division, resulting from the merger of the International Trade Division and the International Accounts and Statistics Division, to create a centre of expertise in cross-border and international statistics. This change is partly a reaction to both the aforementioned measurement challenges and the realities of the increasing role that Canadian banks, pension funds, manufacturers and other business play on the world stage in terms of production, trade and investment.
As part of the effort, new products are being developed, and some business surveys and data products have been or are in the process of being revamped. For example, foreign direct investment and trade in services surveys are now linked with other business surveys through the agency’s centralized business register. Statistics Canada is also expanding statistics on the activities of Canadian affiliates operating abroad and on the activities of foreign affiliates operating in Canada. In turn, these activities can be linked to the foreign direct investment that created them.
United Nations Statistical Commission
The United Nations Statistical Commission assesses how fundamental principles of official statistics can be reinforced and develops practical guides for implementing them. In 2013, this group established the Friends of the Chair Group to undertake a review and coordinate all international initiatives on international trade and economic globalization. Statistics Canada participates actively in this group.
United Nations Economic Commission for Europe Task Force on Global Production
This task force was established in late 2011, in response to the issues outlined in the handbook The Impact of Globalization on National Accounts. It was charged with clarifying international standards, reviewing statistical concepts and methodologies, as well as setting out general guidelines on measurement of all aspects of global production and trade.
“It is pretty hard to find a major international statistical effort where Canada is not invited to the table,” Mr. O’Hagan says. “As a centralized agency, we are well positioned to take work associated with globalization forward. And, we benefit from that international engagement because it allows us to re-think and redevelop our products.”
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The issue is not ‘integrity of other countries’ statistics, but rather one of comparability of relevant statistics (such as trade and foreign direct investment) across countries. International comparability of countries’ related statistics is an important feature for some key users of statistics.
There is no formal mechanism to undertake bilateral country checks of data, although certain international organizations do put country data side-by-side and are showing increasing interest in resolving any large bilateral country data discrepancies. Another mechanism is for statistical agencies to undertake periodic or regular bilateral data confrontation exercises; however, these can be expensive undertakings if extended to cover, say, all major trading partners. Statistics Canada does ensure that relevant statistical measures are comparable with the United States, and this does involve some degree of bilateral data confrontation.
Of note is that bilateral data confrontations would typically be limited to comparisons of aggregate data, as most countries have restrictions on comparing microdata. This is the case in Canada as we are bound to protect respondent confidentiality, and these restrictions are defined by the Statistics Act.
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