New Trends in International Economics and Long-term Balance of Payments Statistics

Fukunari Kimura


In order to build upon the recent progress made in empirical research in international economics, where should we focus our efforts in preparing statistical data on long-term trade and international balance of payments? And what kinds of empirical research will be made possible by this gathering of statistics? As a user of statistical data, I would like to offer my ideas on these issues.

Since the Asian Historical Statistics Project is emphasizing GDP and GNP statistics, it is desirable to concentrate on "residency based statistics," which are also suitable to the preparation of international data. Although we must allow the commodities trade portion to be in a customs clearance base, it is especially important that other parts of the international balance of payments table be compiled on a residency concept. Japan's international balance of payments format underwent important changes in January 1996 when it was revised to conform to the 5th edition of the IMF manual, rendering clearer the intent to adjust statistics so that they are based on the concept of residency. Using the newest available formats to compile Statistics Project data would greatly enlarge the empirical research to which it could be applied in the future.

If there is a dominant "new trend" in international economics (especially international trade theory), it is the concentration of efforts toward trying to connect the theories on firms' behavior to the statistical data accumulating at the macro level which is used for empirical research. For advanced nations, this means that the internationalization of corporate activities renders the concept of national boundaries multi-faceted, and that geographic national boundaries do not mean boundaries between residents and non-residents. Further, one company may engage in activities which cover both residential and geographic aspects. Naturally, this phenomenon has become a topic of empirical research.

Another significant meaning is indicated when we reflect on the significance of Asia's historical statistics, which suggest that we need to think differently about the concept of "national borders." There should have been considerable movement in the productive factors between the colonies and the suzerain states. Further, both before and after independence, most of the colonies were highly exposed to foreign economies relative to the size of their domestic economies. During the periods before the colonies became independent, there was a high possibility that the importance of transactions other than commodity trade was often not grasped. Therefore, the first major step in preparing statistics is to compile international relations statistics in a form close to a residency conception so that they will have the greatest possible contemporary meaning. Then it is desirable to link these to increasingly detailed data compilation in the future.

The following presents ideas which do not necessarily match the Statistics Project's present practices in preparing data, and there are questions about whether the data is available. The discussion considers the different statistical groups in order: 1) merchandise trade, 2) trade in services, 3) movement of people, 4) international capital movements and investment profits, 5) international balance of payments, and 6) exchange rates.


1. Merchandise Trade

(1) Preparing statistics

Merchandise trade: To the extent possible, it is desirable to arrange data on merchandise trading according to the following six dimensions: (i) reporting country, (ii) partner country, (iii) exports and imports, (iv) items of trade, (v) month and year, and (vi) monetary value and quantitative volume. With just SITC Rev. 1 (52 classifications), it is possible to conduct considerable empirical analysis of trade items. It would be best to have quantitative data and data disaggregated by partner country, but compiling these data takes quite a lot of time, so it has to be assigned a low priority.

Import and export price indexes: To obtain price indexes to cover total trade data, it is sufficient to calculate unit price indexes from monetary values and quantitative volumes. It may be possible to obtain prices which take account of changes in quality for particular primary products. This is also valuable information.

International transportation costs: While the data may be difficult to compile, comparing f.o.b./c.i.f. by partner country and item makes the analysis on economic integration possible. Item-specific information might also provide a subject for analysis.

Information on trade policy: Information on such areas as what kind of discriminatory undertakings took place according to whether or not trading partners were colonial states, what share of government revenues customs duties represented, and how major primary goods were handled is extremely valuable. Further, while quantification in comparative form is difficult, also important is information on areas such as measures other than customs duties which restricted trade in any sectors or preferential measures toward particular trade sectors.


(2) Ideas for empirical research

Analysis of comparative advantage, international competitiveness, and the advance of industrialization: As a first-round observation, it is useful to calculate indirect measures of comparative advantage such as net export ratios, the revealed comparative advantage (RCA) indices, import-internal demand ratios, and export-production ratios. Further, if there are data disaggregated by partner countries, the true so-called "triangular trades" may be analyzed.

Analysis of degrees of mutual trade dependency: If there are trade data disaggregated by partner countries, then it is also possible to measure the "trade complementarity index." Further, analyses of the causal factors determining trade volumes, controlling for distance from trade partner countries, are also possible.

Application of gravity model for trade volume: In the past, the proportion of international transport costs as a determining factor in trade volumes should have been much greater than they are at present. Analyses of international transport costs and degrees of economic integration are also important.

Measuring degrees of economic openness and overseas dependence: Exports and imports as proportions of GDP are important as a rough measure of the degree of economic openness.

Changes in the terms of trade and prices of primary products: It is worth conducting analyses to see if a long-term decline in prices of primary goods occurred, if there was a large degree of price instability, and if there were artificial controls on prices, and to find out who was taking quasi-rent.

Trade policy : It is also important to conduct analyses of the effect on trade volumes of the most favored nation principle, economic blocs, unequal treaties, and so on.


2. Trade in services

(1) Preparing data

Data on trade in services: The 5th edition of the IMF Manual categorizes trade in services into eleven categories. These are transportation, travel, communications services, construction services, insurance services, financial services, computer and information services, royalties and license fees, other business services, personal, cultural, and recreational services, and government services. It is obvious that gaining a complete understanding of trade in services will be difficult. Depending on the item, however, it may be possible to gather some of the data. Moreover, since trade in services includes only resident and non-resident service transactions, the information must be supplemented with data on such economic activities as local companies established through direct investment, and long-term foreign labor and immigration.

Understanding transport service transactions: It is very important to know about international transportation costs, including who provided and who paid for the services. Further, in order to convert c.i.f. base imports into f.o.b. base values, it is necessary to gain an understanding of services in trades exclusive of the total costs of international transport.

Fees for use of patents etc.: As one channel for technology transfer, patent fees are important.


(2) Ideas for empirical research

Analyses of international transport costs and insurance; Partial comprehension of trade in technology .


3. Movement of people

(1) Preparing statistics

Understanding movements of people: This area has declined as a priority in the sense of macro statistics, but if data on contemporary passport controls and visas still remain, we should be able to understand the official movements of people.

Understanding compensation of employees: The compensation of employees may be used for attempting to indirectly understand movements of people. However, if prepared on the basis of the contemporary residency concept, the money sent to home countries by workers, who have been treated as local residents, must be calculated as "current transfers" instead of "compensation of employees." Further, worker compensation that is not treated as residential and so on must be summed up as "compensation of employees" even if it is not sent to home countries, and local personal expenditures must be summed up as "balance of payments in services for travel." In any case, we have to be careful not to underreport the activities of foreign workers by simply counting money sent overseas.


(2) Ideas for empirical research

Can we conduct analyses into such matters as the form which movements of human capital from colonial states took and the scale on which it occurred? On what scale did movements of students, or other movements of people, from colonies to colonial states take place? On what scale did the movement of unskilled labor take place as a result of plantation operation or for other reasons?


4. International capital movements and investment profits

(1) Preparation of statistics

Understanding investment income: This is important for knowing what level of investment income was gained by the colonial state. However, care must be taken because there will probably be no data on local reinvestment. Reinvestment must be counted both in the income account in the current account and in the investment account in the capital financial account.

Understanding capital income and expenditures: This is especially necessary for knowing capital flows between colonial states and colonies. Whether investment is direct or indirect is important for hypothesizing about capital flow channels. However, with regard to capital accounts, we must take care not to treat reinvestment inappropriately.


(2) Idea for empirical research

Evaluating colonial management as an investment activity: Establishing industries through direct investment


5. International balance of trade

(1) Preparing statistics

Comprehending current accounts, capital accounts, and increases and decreases in foreign currency reserves: This is important for constructing part of the macro statistics.


(2) Idea for empirical research

Open macro empirical research: Depending on how statistics are compiled, a number of types of empirical research can be conducted, from checking resource balances to the international linkage of business fluctuations.

Analysis of the composition of current accounts: Obtaining the balance between trade in goods and other transactional forms is also important, especially between colonial states and colonies.


6. Exchange rates

(1) Preparing statistics

Comprehending exchange rate movements: It is important to pay attention to the relationship between forms of foreign exchange transactions and exchange rate movements.

Exchange policy and currency controls: There are a number of important points here, including what foreign currencies circulated in what range, and what foreign currency controls existed.


(2) Idea for empirical research

Relationship between exchange rate and price: It would be very interesting to examine how prices were diffused internationally under the gold standard system and controlled currency systems.

Analysis of transaction currencies: It would be helpful to know what role the currency of colonial states played in the spread of monetary economies in developing areas.


Keio University, Department of Economics