SWEDEN TRADE AND INVESTMENT STATISTICAL NOTE

International trade, foreign direct investment and global value chains SWEDEN TRADE AND INVESTMENT STATISTICAL NOTE 217 International trade and foreign direct investment (FDI) are the main defining features and key drivers of global value chains (GVCs). However, despite their strong complementarities, the two flows are typically presented and treated separately in the statistical information system. Drawing on new and improved measures of trade and investment, this country note provides relevant statistical information from OECD databases on trade, investment, the activities of multinational enterprises (MNEs) and global value chains (TiVA). It sheds new light on the trade-investment nexus by highlighting the interrelationships between trade and FDI, their economic impact in the context of GVCs, and the role of MNEs as the main directors of these flows. The data are as of 1 May 217. More information and country notes are available at www.oecd.org/investment/tradeinvestment-gvc.htm. One-third (33% in 214) of economic activity (GDP) in Sweden depends on foreign markets, around the same as in Norway and Denmark. Sweden has substantial inward investment (equivalent to 57% of GDP in 215), which supports one fifth of private sector jobs, while Swedish outward investment was larger still (equivalent to 72% of GDP in 215). A broader notion of international orientation, which captures the impact on national income of exports and sales through foreign affiliates, shows that Sweden s international orientation was equivalent to 36% of GDP in 214. Considering both trade and investment through this broader perspective can also shed new light on Sweden's most important partner countries. While most partner countries supply Swedish consumers through trade and sales by foreign affiliates, Italian and Spanish firms do so almost entirely through trade while Finnish firms supply the majority through sales by foreign affiliates. Furthermore, considering both trade and investment, Finland jumps ahead of Denmark, China and Italy as a supplier to the Swedish market, which is not evident when looking at trade alone. The top exporting manufacturing industries in Sweden are chemicals and chemical products (CHM), motor vehicles (MTR) and computers and electronics (CEQ). Many Swedish industries are highly export orientated and the driving forces are a mixture of foreign affiliates and domestic enterprises. For example, the chemicals (CHM) industry has high value added by foreign-owned firms and most of the value added produced meets foreign demand, so too for the motor vehicles (MTR) and electronics (ELQ) industries; however, the metals (MET) and computers (CEQ) industries have low shares of value added by foreign owned firms and high export orientation. OECD 217 www.oecd.org/investment/trade-investment-gvc.htm

Growth Rates Trade and investment in Sweden Growth in trade has recovered since the global and euro crises but slowed in 216 Like many European economies, Swedish trade contracted significantly at the height of the global crisis and again during the euro crisis. Swedish trade growth closely tracked the OECD average in the pre-crisis years, and apart from a sharper fall during the euro crisis, Swedish rates have been broadly in sync with OECD rates since then. In 216, export and import growth fell slightly to 3.5% from approximately 5.5% in 215. 15 1 5-5 -1-15 -2 Figure 1 Growth rates of trade and GDP for the OECD and Sweden, 21-216 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 Sweden GDP OECD GDP Sweden Exports OECD Exports Sweden Imports OECD Imports Source: OECD SNA Gross exports amounted to USD 227 billion in 216 (5% of GDP), and gross imports to USD 23 billion (45% of GDP). Gross trade figures, however, overstate the real contribution of trade to the economy. In value added terms, exports contributed 33% of total GDP in 214, below both the pre-crisis high and the OECD median (grey diamond). The contribution of direct and indirect imports to domestic final demand measured 27% in 214. 4% 35% 3% 25% 2% 15% 1% 5% % Figure 2. Trade in value added terms, imports and exports, 21-214 21 22 23 24 25 26 27 28 29 21 211 212 213 214 Imports (Foreign value added in domestic final demand) Exports (Domestic value added in foreign final demand) OECD Exports (Domestic value added in foreign final demand- median) Source: OECD-WTO Trade in Value Added Data Investment is more outward than inward Sweden has strong outward and inward investment; outward stocks were equivalent to 72% of GDP meaning Swedish FDI is more outward orientated (Figure 3). In 215, Sweden s share of the OECD total outward FDI stock (1.9%) was above its share of GDP (1%), and its share in inward stock was 1.7% of the OECD total, also above its share of GDP (Figure 4). 2

% GDP % GDP Figure 3. FDI stocks and income as a share of GDP total 8 7 6 5 4 3 2 1 213 214 215 Inward FDI stock Outward FDI Stock Income payments Income receipts Source: OECD FDI Statistics (BMD4) 7 6 5 4 3 2 1 Figure 4. FDI stocks and GDP as a share of OECD total, 215 2.% 1.5% 1.%.5%.% GDP Inward Outward Source: OECD FDI Statistics (BMD4) Foreign-owned firms directly sustained 21% of jobs in the private sector in 213. Reflecting the size of inward investment compared to other OECD economies, foreign-owned enterprises accounted for 21% of jobs in the private sector in 213 and 27% of private sector value added produced in Sweden, excluding the agriculture and finance sectors. and are more export intensive than domestically owned firms On average, foreign-owned firms in Sweden are over twice as export intensive (share of exports in turnover) as domestically owned firms, and their export intensity is above the OECD median. The import intensity of foreign-owned firms (share of Figure 5. Export and import intensity of domestic and foreign-owned enterprises 45% 4% 35% 3% 25% 2% 15% 1% 5% % Sweden OECD Sweden OECD Median Median Export Intensity Domestic-owned firms Import Intensity Foreign-owned firms Source: OECD AMNE and Trade by Enterprise Characteristics (TEC) statistics (211) imports in purchases) is over three times that of domestically-owned firms and also above the OECD median. Domestic MNEs provide important channels to penetrate foreign markets via affiliates In 215, Sweden received USD 28 billion in income from its outward investment, equivalent to approximately 6% of GDP. Sweden s rate of return at 7.9% (green bar) on its outward FDI is at the higher end of OECD countries. On the other side, the return to foreign investors in Sweden was also high relative to that of other OECD countries at 7.3%. 3

% GDP % Goods exports TUR SVN IRL ITA NZL LUX BEL HUN PRT POL ISL AUS CHL CAN NLD NOR EST FRA DEU GBR ESP AUT USA SVK GRC DNK SWE FIN CHE CZE LVA 18% Figure 6. Return on investment, income receipts and payments as a share of inward and outward stocks, 215 13% 8% 3% -2% Inward FDI return Outward FDI Return Source: OECD FDI Statistics (BMD4) and via exports Looking across a selection of European economies, MNEs play a significant role in GVC integration. In some countries it is through the activity of MNE parents, while for other it is foreign-owned firms. In each country with available data, at least half of all goods exports are conducted by MNEs. Sweden s export orientation is below the OECD median Figure 7. Goods Exports by firm type, the role of MNEs 1% 8% 6% 4% 2% % AUT DNK FIN FRA HUN ITA POL PRT Foreign-owned firms Domestic MNEs Domestic firms Source: OECD TEC statistics (211) Exports (in value added terms) contribute around 33% of Swedish GDP, this is below the OECD median, but comparable with Norway and Denmark. It may in part reflect high levels of inward investment and their relatively high export intensity (compared to foreign affiliates operating in other countries) contributing to substantial GVC integration as measured by the import content of exports. However, export orientation has not recovered to pre-crisis levels (see insert chart). Figure 8. Export orientation, foreign affiliates value added and import content of exports, 214 8% 7% 6% 5% 4% 3% 2% 1% % LUX IRL HUN CZE SVK SVN EST LVA NLD BEL POL NOR AUT SWE DEU DNK PRT FIN ESP ITA GBR FRA JPN USA Domestic value added in foreign final demand (% of total domestic value added) Value added produced by foreign controlled enterprsies (share of domestic total) Foreign value aded in exports (% in exports) Source: OECD-WTO Trade in Value Added Data and OECD AMNE statistics Not all of the domestic value added content of exports sticks in the economy Gross export figures overstate the real economic impacts of trade to the exporting economy, but TiVA estimates can also overstate these impacts as the profits earned by foreign-owned firms through exports are repatriated if they are not reinvested. Figure 9 illustrates the importance of these flows across countries by showing the value added in exports of domestically-owned firms (blue bar), wages paid by foreign-owned 4

% GDP % GDP firms (green bar), and profits of foreign-owned firms (grey bar), which in practice can be repatriated. Excluding these profits Swedish exports contain 3% of value-added that remains in the economy. So, 9% of Sweden s exported domestic value added represents profits by foreign-owned firms and 18% represent wages paid by these firms. The share of value added that remains in the economy has fallen since 28 (see insert chart). 8% 7% 6% 5% 4% 3% 2% 1% % Figure 9. Exports by ownership and their contribution to income, as a share of GDP, 214 LUX SVN CZE EST SVK HUN BEL AUT LVA NLD SWE NOR DEU DNK POL PRT FIN ESP ITA GRC FRA GBR USA VA that could be repatriated Labour costs of foreign firms Value added by domestic firms Source: OECD-WTO Trade in Value Added Data and OECD AMNE statistics. Taking a broader view by including the income of foreign affiliates can provide a more complete picture of the international orientation of the Swedish economy Firms serve foreign markets by exporting or by selling through their foreign affiliates. Figure 1 takes a broader view of an economy s international orientation by taking account of both trade and investment. The chart begins with the domestic value added in exports that remains in the economy exports of value added by domestic firms (blue bar) and wages paid by foreign-owned firms associated with exporting (grey bar) and adds to it the profits that domestic MNEs receive from the activities of their foreign affiliates as measured by FDI income receipts (light blue bar). The income payments made to foreign parents are presented for information purposes (green bar). For Sweden this broader measure (36%) is higher than the export orientation measure from TiVA (33%) because Sweden is a net outward direct investor. Sweden moves towards the higher end of OECD countries using this measure, highlighting the role of outward investment. However, this measure has fallen since 28 due to drops in both exports of value added and FDI income receipts (see chart insert). 9% Figure 1. Supplying markets through trade and investment: a broader perspective, 214 7% 5% 3% 1% -1% LUX SVN EST NLD CZE SWE HUN SVK BEL DNK AUT LVA NOR DEU PRT POL ESP FIN ITA GRC FRA GBR USA -3% VA repatriated to parent by affiliates Labour costs of foreign firms associated with exports VA by domestic firms that serves foreign final demand VA repatriated to parent Source: OECD-WTO Trade in Value Added Data, OECD AMNE and OECD FDI (BMD4) statistics 5

Partner share in total % Partner share in total % This broader perspective can also shed light on how foreign firms serve the Swedish market Foreign producers supplied products and services for Swedish final consumption equivalent to 38% of GDP in 214; the majority is through trade (foreign value added in Swedish final demand equals approximately 27% of GDP), but value added generated by foreign affiliates in Sweden for domestic (nonexport) sales (Figure 11) accounts for a not insignificant 11% of GDP. Although some of this value added can be repatriated to parents, this share is lower in Sweden than in most other OECD economies (grey bar). 7% 6% 5% 4% 3% 2% 1% % Figure 11. How foreign firms serve your market: a value added perspective, 214 EST LUX HUN LVA SVK SVN AUT POL SWE PRT FIN GBR DNK FRA NLD ITA USA Share of profits in VA of foreign-owned firms (sold domestically) Share of labour costs in VA by foreign-owned firms (sold domestically) Trade: FVA in domestic final demand Source: OECD-WTO Trade in Value Added Data, OECD AMNE and OECD TEC statistics. Trade and investment by partner country Trade measured from a value added perspective better reflects the bilateral relationships Gross bilateral trade figures can disguise the true nature of trade interdependencies, particularly between final consumers in one country and producers at upstream parts of the value chain. This is evident for the bilateral relationship with the United States; value added data show that the United States leap-frogs Germany, Norway, and the United Kingdom to the top destination for Swedish exports. For imports, value added data show that Chinese production is more important than French, Danish and Finnish value added. Figure 12. Exports: gross and value added terms, by partner country, 214 12 1 8 6 4 2 USA NOR DEU GBR FRA CHN FIN DNK ITA SAU Domestic value added exports Gross exports Source: OECD-WTO TiVA Data Figure 13. Imports: gross and value added terms, by partner country, 214 12 1 8 6 4 2 USA GBR NOR CHN FRA DNK FIN RUS ESP NLD Foreign value added Source: OECD-WTO TiVA Data Gross Imports 6

Share in manufcaturing total % in exports Millions of USD and interdependencies are further revealed when looking at the broader notion of trade. Foreign firms can serve an economy though trade or sales by foreign affiliates; bringing the trade and investment perspectives together can shed a different light on who a country's most important partners are (Figure 14). Substantial variation exists across countries in how they supply the Swedish market. Most partner countries supply Swedish consumers through trade and sales by foreign affiliates, but Italian and Spanish firms do so almost entirely through trade while Finnish firms do the majority through sales by foreign affiliates. Furthermore, considering both trade and investment Finland jumps ahead of Denmark, China and Italy as a supplier of the Swedish market, which is not evident when looking at trade alone. Figure 14. Supplying the Swedish market via trade and investment: Top 1 partner countries, 214 3 25 2 15 1 5 DEU USA GBR NOR FRA FIN DNK CHN NLD ITA RUS Sales by foreign affiliates (VA by foreign controlled firms (sold domestically)) Trade (Foreign value added in domestic final demand) Source: OECD-WTO TiVA Data and OECD AMNE statistics Note: Data on foreign affiliate presence is not available for Russia. Trade and investment by industry Outward and inward investment help shape Sweden s GVC integration The top manufacturing exporting industries in Sweden are chemicals and chemical products (CHM), motor vehicles (MTR) and computers and electronics (CEQ). The import content of exports varies across industries illustrating the role that importing plays in supporting exports and indicating the degree of GVC integration in these industries. The role of foreign-owned firms varies across Swedish industry, in part reflecting Sweden s own comparative advantages and specialisation of its MNEs as well as the importance of foreign investment for certain industries. 3% Figure 15. Top exporting manufacturing industries in Sweden, 214 1 25% 2% 15% 1% 5% 8 6 4 2 % CHM MTR CEQ PAP MEQ MET PET FOD ELQ FBM Exports Imports VA by foreign-owned firms Import content of exports (RHS) Source: OECD-WTO Trade in Value Added Data and OECD AMNE statistics. See page 1 for a description of industry codes. 7

Domestic industry VA in foreign final demand (% of total) VA by foreign-owned firms (share of domestic total) Exports and imports go hand in hand Across most industries there is a strong correlation between higher import content of exports and a higher share of their domestic value-added being exported (export orientation) illustrating the strong complementarity of exports and imports. Figure 16. Import content of exports and export orientation, 214 1 CHM MET 9 RBP MTR PAP CEQ ELQ 8 7 MEQ WOD FBM 6 OTM NMM 5 FOD TRQ 4 3 2 1 1 2 3 4 5 Import content of exports % Source: OECD-WTO TiVA Data and OECD AMNE statistics Figure 17. Foreign-owned firms and export orientation, 214 9 CHM 8 7 6 5 4 3 2 1 FOD ELQ MTR TRQ NMM MEQ PAP RBP OTM WOD FBM CEQ MET 2 4 6 8 1 Domestic industry VA in foreign final demand (% of total) Source: OECD-WTO TiVA Data and OECD AMNE statistics...and investment and export orientation can also go hand in hand At the same time, strong complementarities can exist between inward investment and export orientation (Figure 17). For Sweden, this pattern is less obvious, reflecting the strength of domestic industry. For example, the chemicals (CHM) industry has high value added by foreign-owned firms and most of the value added produced meets foreign demand, so too for the motor vehicles (MTR) and electronics (ELQ) industries; however, the metals (MET) and computers (CEQ) industries have low shares of value added by foreign owned firms and high export orientation. Figure 18: trade in goods by ownership and industry cannot be produced for Sweden due to data availability. Service industries play an important role in the export orientation of an economy Typically, services account for a large share of the value added in the economy but conventional gross trade statistics understate this as they cannot reveal the contribution that the upstream services industry plays in the production of goods exports. Accounting for this contribution, the services content of Sweden s total exports of goods and services was 61% in 214 (Figure 19), above the OECD median of 56%. Considering the services content of manufactured goods alone, 42% of manufacturing exports reflects services value added, above the OECD average of 36%. 8

Domestic services value added share of gross exports CHL MEX KOR NOR CAN SVK CZE AUS DEU JPN HUN SVN POL TUR FIN ITA USA AUT PRT ESP NZL ISL SWE EST ISR LVA FRA CHE GRC GBR BEL DNK IRL LUX 1 Figure 19. Services content of gross exports for OECD countries, 214 8 6 4 2 Foreign Services VA content in Exports Total Domestic Services VA in Exports Source: OECD-WTO TiVA Data and so inward FDI in the services sector can be an important channel for export success Greater foreign investment in the services sector is associated with higher services content in exports. For Sweden, the share of investment in services is at the higher end for OECD economies, which could contribute to its relatively high services content in exports. Figure 2. Share of services industries in foreign-owned firms value added and domestic services value added share of exports, OECD countries, 214 6% 5% 4% 3% 2% 1% GBR BEL FRA EST DNK ESP GRC ITA AUT LVA PRT POL DEU FIN SWE NLD LUX SVN HUN NOR SVK CZE % % 2% 4% 6% 8% 1% Share of services industries in foreign-owned firms value added Source: OECD-WTO TiVA Data and OECD AMNE statistics Links and data sources Guide to the trade and investment statistical notes www.oecd.org/investment/guide-trade-investment-statistical-country-notes.pdf Activity of Multinational Enterprises - AMNE www.oecd.org/sti/ind/amne.htm OECD Benchmark Definition of Foreign Direct Investment - 4th Edition (BMD4) (see Chapter 8 for information on the intersection of AMNE and FDI data) www.oecd.org/investment/fdibenchmarkdefinition.htm Foreign Direct Investment (FDI) Statistics www.oecd.org/investment/statistics.htm Trade by Enterprise Characteristics - TEC www.oecd.org/std/its/trade-by-enterprise-characteristics.htm Trade in Value Added - TiVA www.oecd.org/sti/ind/measuringtradeinvalue-addedanoecd-wtojointinitiative.htm 9

Table of industry codes Industry Type Ind Code Industry Description Primary Industries Manufacturing Services AGR MIN FOD TEX WOD PAP PET CHM RBP NMM MET FBM MEQ CEQ ELQ MTR TRQ OTM EGW CON WRT HTR TRN PTL FIN REA RMQ ITS BZS GOV EDU HTH OTS PVH Agriculture, hunting, forestry and fishing Mining and quarrying Food products, beverages and tobacco Textiles, textile products, leather and footwear Wood and products of wood and cork Pulp, paper, paper products, printing and publishing Coke, refined petroleum products and nuclear fuel Chemicals and chemical products Rubber and plastics products Other non-metallic mineral products Basic metals Fabricated metal products except machinery and equipment Machinery and equipment n.e.c Computer, electronic and optical products Electrical machinery and apparatus n.e.c Motor vehicles, trailers and semi-trailers Other transport equipment Manufacturing n.e.c; recycling Electricity, gas and water supply Construction Wholesale and retail trade; repairs Hotels and restaurants Transport and storage Post and telecommunications Finance and insurance Real estate activities Renting of machinery and equipment Computer and related activities Research and development & Other Business Activities Public admin. and defence; compulsory social security Education Health and social work Other community, social and personal services Private households with employed persons OECD 217. This note is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and the arguments employed herein do not necessarily reflect the official views of OECD member countries. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Please cite this note as: OECD (217), Sweden: Trade and Investment Statistical Note. 1