Macroscope | Traditional trade figures understate importance of services
In a landmark report released on the day before Christmas Eve last year, the mainland revised down its 2012 exports from US$2.2 trillion to US$1.4 trillion. Expressed as a share of gross domestic product, that is a drop from 27 per cent to 17 per cent.
Despite the timing of the Ministry of Commerce data release, this would have made global headlines if it were the result of a disastrous and career-terminating blunder by hapless statisticians for whom numbers are only what you can get people to believe. It was not.
The original value is a gross number that includes both the import content of trade and the domestic contribution. The second is a domestic value-added number only and properly reflects the mainland’s production and trade performance. Unfortunately, most governments only report the first number because of the difficulty of deriving the second one.
Every US$1,000 of services exported generates US$848 value-added at home
The mainland is ahead of the game in generating detailed national trade in value-added numbers. It took an interagency taskforce three years to bring out these numbers. They are gleaned from a variety of sources, including data from firms.
The greater an economy’s reliance on trade as a source of income and jobs, the more misleading the traditional gross values become as a guide to national economic performance.
Our continued reliance on trade numbers that fail to reflect reality is a theme that this column has taken up before. The gross numbers mislead on the composition and technology content of bilateral trade flows, and incorrectly state bilateral trade balances. They mask the true nature of interdependency among countries through trade flows.
The greatest casualty of reliance on gross trade numbers is the services sector. Significant value generated by services is concealed as trade in goods. Only when the numbers are broken down into the sources of value does the true contribution of services become clearer.
It is fortunate for governments that their data-collecting efforts are not subject to truth-in-advertising laws. For years, services were deemed to constitute less than a quarter of global trade. After efforts were made to measure trade in value-added terms – notably by the Organisation for Economic Cooperation and Development, supported by the World Trade Organisation and a number of other institutions and government agencies – the share jumped to almost half.