DOMESTIC ECONOMY and EXTERNAL TRANSACTIONS

Transcription

1 An Introduction to System of National Accounts Integrated Transaction Accounts Lesson: V DOMESTIC ECONOMY and EXTERNAL TRANSACTIONS Second Intermediate-Level e-learning Course on 2008 System of National Accounts October - December

2 Contents Domestic economy revisited External Transactions revisited 2

3 Domestic Economy - Revisited 3

4 Domestic Economy Definition Residence a re-look All resident units constitute the domestic economy. Residents: Institutional units with their centre of predominant economic interest in the economic territory. In the 2008 SNA, residence is defined in the same way as in the BPM6. 4

5 Domestic Economy Centre of predominant economic interest Centre of predominant economic interest in an economic territory: the institutional unit should have some location, dwelling, premises within the economic territory an intention to continue - indefinitely or over a long period of time (operational definition - one year or more) for carrying out economic activities and transactions on a significant scale. 5

6 Domestic Economy Non-residents ownership of Immovable Assets For national accounts, a notional resident unit is identified when the (immovable) assets in the domestic territory are owned by a non-resident. This notional resident unit is treated as a kind of quasicorporation. 6

7 Domestic Economy Change of Residence Individual changing residence from (say) country A to country B: Financial assets & liabilities move with the individual from A to B Home economy: A Host economy : B Notional unit in A: with nonfinancial asset of land & building owned in home economy; and direct investment liability. 7

8 Domestic Economy Branch of non-residential unit When a non-resident unit (of country A) has substantial operations over a significant period in country B, but no separate legal entity, a branch is identified in B as an institutional unit. The branch is treated as a resident quasi-corporation of B. It is owned by the non-resident unit (of country A), referred to as the parent. 8

9 Domestic Economy Multinational Enterprises (MNEs) MNEs are usually very large enterprises, with operations extend seamlessly across national boundaries. To maximizing their global after-tax profits, they allocate resources, price intra-company transactions, and bill transactions in a way that reduce their global tax burden. These practices affect estimates of GDP, but perhaps not the GNI. 9

10 Domestic Economy Multi-territory unit Multi-territory unit: Enterprises with a seamless operation over more than one economic territory, with no separate accounts or decision-making for each territory Not possible to delineate branches. For accounts of each national economy, it is necessary to split the operations between economies by prorating the operations, using an appropriate indicator. 10

11 Institutional Units Special Purpose Entities (SPEs) SPEs are always related to another corporation, often as a subsidiary, and often resident in a different economic territory. These are commonly managed by employees of another corporation related or unrelated. They may have little physical presence beyond a brass plate confirming their place of registration. The SPE pays fees for services rendered to it charges its parent or other related corporation a fee often incur liabilities on behalf of its owner usually receive investment income and holding gains on the assets it holds. 11

12 Institutional Units Special Purpose Entities (SPEs) Special purpose entities (SPEs) captive financial Institutions Artificial subsidiaries of corporations SPEs of General Government Holding Companies other captive financial institutions operating independently cannot operate independently 12

13 Institutional Units Captive Financial Institutions The category units which cannot act independently: conduits: raises funds on open markets & passes on to the parent enterprise(s). wealth holding entities: only holds assets & liabilities for their owners and earns property income on behalf of their owners are not treated as a separate institutional unit unless it is resident in an economy different from that of its parent. 13

14 Institutional Units Holding Company A unit that holds the controlling levels of assets of subsidiary corporations but does not undertake any management activities. These are treated as captive financial institutions They fall in ISIC Rev. 4 in section K class These are always allocated to the financial corporations sector even if all the subsidiary corporations are non-financial corporations. GVO estimated at cost. For example: holds Company A Holding company (X) holds Company B holds Company C X only owns the shares of the companies A, B & C. Has no other role in functioning of companies. 14

15 Institutional Units Head Office Head office exercises managerial control over its subsidiaries. If identifiable as a separate establishment, it is considered to be undertaking purely ancillary activities. The activities of head offices are described in ISIC Rev. 4 in section M class Such units are allocated to the non-financial corporations sector, if all or most of their subsidiaries are non-financial. If all or most the subsidiaries are financial units, they are treated (by convention) as financial auxiliaries. GVO estimated at cost. 15

16 External Transactions - Revisited 16

17 Transactions with RoW Transactions with the RoW External trade exports (X) and imports (M) Income from and to the RoW (flows of factor services in exchange of CE, investment income and rent of natural resources) Current transfers (including income & wealth tax) from and to the RoW Capital transfers from and to the RoW Acquisition from and disposal to the RoW of valuables and nonproduced assets Net acquisition and net incurrence of financial assets and liabilities. 17

18 Transactions with RoW External Trade Exports flow of goods and services from resident units to non resident units, valued at fob. Imports flow of goods and services from non resident units to resident units, valued at fob. Trade in non-factor services include provision of services to non residents Merchanting of goods Service charges for goods received from abroad for processing Transport, insurance, hotels and restaurants, etc.. External transaction also includes expenditure on goods and services made in an economy by resident of another economy. Determined by change in economic ownership. 18

19 Transactions with RoW External Trade Goods for Processing In accordance to the principle of economic ownership : For the goods sent abroad for processing, imports and exports should be measured as the processing fee instead of by the full value of the processed goods. Flows of goods between the country owning the goods and the country providing the processing services should not be recorded as imports and exports of goods. Instead the fee paid to the processing unit should be recorded as the import of processing services by the country owning the goods and an export of processing services by the country providing it. 19

20 Transactions with RoW External Trade Goods for Processing 1993 SNA & 2008 SNA For country A sending goods for processing to country B: In 1993 SNA: Imputed value of raw materials is treated as imports of B and exports for A. Imputed value of finished goods is treated as exports of B and imports for A. In 2008 SNA: Value of goods sent for processing or the finished goods are recorded neither as exports or imports. Only the processing fees is recorded as trade in services. 20

21 Transactions with RoW External Trade Merchanting Purchase of goods by a unit (merchant) in economy X from economy Y and sale to economy Z, Purchase value of goods for resale = -ve exports of X where the goods legally change ownership but do not physically enter the economy X. Economy: X Sale value of goods = +ve exports of X Economy: Y Economy: Z 21

22 Transactions with RoW External Trade Global Manufacturing An activity carried out by the parent MNEs with the help of affiliates (or unrelated non-affiliates) abroad in which the processing and procurement of materials is distributed over different countries. For example: -ve exports = Payment of purchase value Purchases materials from Y MNE parent in country X Payment of processing charges Sends for processing to Z +ve exports = Receipts from sale of finished product Sells finished products to W 22

23 Transactions with RoW External Trade Global Manufacturing 2008 SNA Recommendations If parent MNE owns the physical inputs or semi-manufactured goods which are sent to affiliate (or unrelated enterprise) abroad to produce the final product, the parent MNE is considered as buying a processing service. If the parent MNE acquires ownership of goods from a manufacturing affiliate (or an unrelated enterprise) abroad and sells them on, the parent MNE engages in merchanting. 23

24 Transactions with RoW External Trade Types of Producers Integrated Manufacturer: uses capital, labour, and energy to transform material inputs into a product to be sold. Owns the materials and products Manufacturing service provider (MSP): provides contract manufacturing services, transforming material inputs to contract specifications. Does own the materials and products Factory-less Goods Producer (FGP): outsources the manufacturing process, while arranging for availability of the capital, labour, and material inputs required to make a good. Owns the materials and products. 24

25 End of Lesson V 25

26 Thanks 26