International trade, foreigndirect investment andglobal value chains2017AUSTRALIATRADE AND INVESTMENT STATISTICAL NOTEInternational trade and foreign direct investment (FDI) are the main defining features and key drivers of globalvalue chains (GVCs). However, despite their strong complementarities, the two flows are typically presentedand treated separately in the statistical information system. Drawing on new and improved measures of tradeand 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 newlight on the trade-investment nexus by highlighting the interrelationships between trade and FDI, theireconomic impact in the context of GVCs, and the role of MNEs as the main directors of these flows. The dataare as of 1 May 2017. More information and country notes are available at ss than one-fifth (17% in 2014) of economic activity (GDP) in Australia depends on foreign markets, ashare similar to that of Japan. This is one of the lowest values in the OECD, and likely reflects acombination of factors, including geographic location, the size of the domestic economy, and the lowimport content of exports. Australia's FDI is more inward orientated than outward, with its share of theOECD outward FDI stock falling below its share of OECD GDP, but its share of the OECD inward FDIstock exceeding its share of the OECD GDP.Gross bilateral trade figures can disguise the true nature of trade interdependencies, particularly betweenfinal consumers in one country and producers at upstream parts of the value chain. Value added dataindicate that the United States is actually a more important destination for Australian exports than Korea.On the import side, the United States moves ahead of China once value added data are used, whileSingapore falls behind the United Kingdom, Germany and New Zealand.The top manufacturing exporting industries in Australia are basic metals (MET), food and beverage (FOD)and chemicals and chemical products (CHM). The basic metals industry is highly export orientated, with85% of domestic value added meeting foreign demand, and has one of the highest import content ofexports at 39%, illustrating how imports and exports can go hand in hand. Australia’s services content inits exports at 49% is below the OECD median, and this is correlated with a relatively low share of itsinward investment going to the services sector. OECD tm
Trade and investment in AustraliaGrowth in exports has recovered strongly since the crisis, while import growth has slowedAustralian export growth fared much better than most OECD countries during the financial crisis, andcontinued strongly at 6.7% (above the OECD rate) in 2015. Import growth behaved quite differently,growing faster pre- and post- 2008 than the OECD rates and, since 2012, has been below or close to zero.Figure 1. Growth rates of trade and GDP for the OECD and Australia, 2001-201620Growth 010201120122013201420152016-10Australia GDPOECD Exports-15OECD GDPAustralia ImportsAustralia ExportsOECD ImportsSource: OECD SNAGross exports amounted to USD 234 billion in 2016 (20 % of GDP), and gross imports to USD 262 billion(23% of GDP). Gross trade figures however overstate the ‘real’ contribution of trade to the economy. Invalue-added terms, exports contributed 17% of total GDP in 2014, significantly below the OECD median(grey diamond). The contribution of direct and indirect imports to domestic final demand measured 19% in2014.Figure 2. Trade in value added terms, imports and exports, 2001-201435%30%25%20%15%10%5%0%2001200220032004 2005 2006 2007 2008 2009 2010Imports (Foreign value added in domestic final demand)Exports (Domestic value added in foreign final demand)2011201220132014Source: OECD-WTO Trade in Value Added DataInvestment is more inward than outward orientatedAustralian inward and outward FDI stocks have moved together since 2008, keeping the stock of inwardFDI higher, equivalent to 43% of GDP in 2015 (Figure 3). In 2015, Australia’s share of the OECD totalinward FDI stock (3.3%) was higher than its share of GDP (2.4%), but its share in outward stock was 2.1%of the OECD total, lower than its share of GDP (Figure 4).2
Figure 4. FDI stocks and GDP as ashare of OECD total, 20153.533.5%2.53.0%21.5200820092010 2011 2012Inward FDI stockIncome paymentsSource: OECD FDI Statistics (BMD4)2013% GDP% GDPFigure 3. FDI stocks and income as a share of 14 2015Outward FDI StockIncome receipts0.0%GDPInwardOutwardSource: OECD FDI Statistics (BMD4)Foreign owned firms are typically moreexport intensive than domestically ownedfirmsFigure 5. Export and import intensity of domesticand foreign-owned enterprises30%25%On average, foreign-owned firms in the OECD aremore export intensive (share of exports in turnover)than domestically owned firms. In large countries,when foreign affiliates are driven by marketseeking motives, the export intensity of foreignowned firms can be lower. The import intensity offoreign-owned firms (share of imports in purchases)is also typically higher for foreign-owned thandomestic firms. Data on the export and importintensities of foreign-owned firms in Australia arenot available.20%15%10%5%0%OECD MedianOECD MedianExport IntensityImport IntensityDomestic-owned firmsForeign-owned firmsSource: OECD AMNE and Trade by EnterpriseCharacteristics (TEC) statistics (2011)Domestic MNEs provide important channels to penetrate foreign markets via affiliates In 2015, Australia received USD 13 billion in income from its outward investment, equivalent toapproximately 1.1% of GDP. Australia’s rate of return at 3.5% (green bar) on its outward FDI is below theOECD median, and has been trending down since 2011 (see chart insert). On the other side, the return toforeign investors in Australia was 4.4% in 2015, close to the median of OECD countries.Figure 6. Return on investment, income receipts and payments as a share of inward andoutward stocks, 201518%13%8%Source: OECD FDI Statistics (BMD4)3CZELVAFINCHESWEDNKSVKOutward FDI ReturnGRCUSAESPAUTGBRFRADEUESTNLDInward FDI %SVN3%
Looking across a selection of Europeaneconomies, MNEs play a significant role inGVC integration. In some countries it isthrough the activity of MNE parents, whilefor others, it is foreign-owned firms. In eachcountry with available data, at least half ofall goods exports are conducted by MNEs.Similar data are not available for Australianfirms.Figure 7. Goods Exports by firm type, the role of MNEs100%% Goods exports or via exports80%60%40%20%0%AUT DNK FINFRA HUNForeign-owned firmsDomestic MNEsITAPOL PRTDomestic firmsSource: OECD TEC statistics (2011)But Australia’s export orientation is low relative to many similarly sized economies.Exports (in value added terms) contribute around 17% of Australian GDP, this is relatively low comparedto other OECD economies, but comparable with Japan, which may in part reflect Australia's geographiclocation and, although it receives substantial inward investment (concentrated in mining), it has low GVCintegration as measured by the import content of exports. A low import content of exports is typical ofcountries with natural resources; for Australia, this reflects the high mineral content of its exports.Australian export orientation has fluctuated somewhat over the last decade, possibly reflecting commodityprice variations (see insert chart).% GDPFigure 8. Export orientation, foreign affiliates value added and import content of exports, 201480%70%60%50%40%30%20%10%0%LUX IRL HUN CZE SVK SVN EST LVA NLD BEL POL NOR AUT SWE DEU DNK PRT FIN ESP ITA GBR FRA AUS JPN USADomestic 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 statistics4
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 TiVAestimates can also overstate these impacts as the profits earned by foreign-owned firms through exports arerepatriated if they are not reinvested. Figure 9 illustrates the importance of these flows across countries byshowing the value added in exports of domestically-owned firms (blue bar), wages paid by foreign-ownedfirms (green bar), and profits of foreign-owned firms (grey bar), which in practice can be repatriated. Thesplit cannot be calculated for Australia due to data availability.% GDPFigure 9. Exports by ownership and their contribution to income as a share of GDP, 201480%70%60%50%40%30%20%10%0%LUX SVN CZE EST SVK HUN BEL AUT LVA NLD SWE NOR DEU DNK POL PRT FIN ESP ITA GRC FRA GBR AUS USAVA that could be repatriatedLabour costs of foreign firmsValue added by domestic firmsSource: OECD-WTO Trade in Value Added Data and OECD AMNE statisticsTaking a broader view by including the income of foreign affiliates can provide a morecomplete picture of the international orientation of the Australian economyFirms serve foreign markets by exporting or by selling through their foreign affiliates. Figure 10 takes abroader 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 valueadded 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 foreignaffiliates as measured by FDI income receipts (light blue bar). The income payments made to foreignparents are presented for information purposes (green bar). This broader measure cannot be calculated forAustralia due to data availability, however it would likely be lower than the TiVA measure of exportorientation as Australia is a net recipient of FDI.Figure 10. Supplying markets through trade and investment: a broader perspective, 201490%70%% GDP50%30%10%-10% LUX SVN EST NLD CZE SWE HUN SVK BEL DNK AUT LVA NOR DEU PRT POL ESP FIN ITA GRC FRA GBR USA-30%VA repatriated to parent by affiliatesVA by domestic firms that serves foreign final demandLabour costs of foreign firms associated with exportsVA repatriated to parentSource: OECD-WTO Trade in Value Added Data, OECD AMNE and OECD FDI (BMD4) statistics5
This broader perspective can also shed light on how foreign firms serve the domestic marketForeign producers supply products and services for final consumption through trade, measured as foreignvalue added in domestic final demand (blue bar), and sales by foreign affiliates sold domestically (greenand grey bar) (Figure 11). Foreign production can be split between labour costs and profits, the profitcomponent of value added by foreign-owned firms can be repatriated to the parents. Due to limited dataavailability the following chart cannot be produced for Australia, but it is likely that foreign firms serve theAustralian market more through trade than through investment as in other economies.Figure 11. How foreign firms serve your market: a value added perspective, 201470%60%50%40%30%20%10%0%ESTLUXHUN LVA SVK SVN AUT POL SWE PRT FIN GBR DNKShare 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 demandFRANLDITAUSASource: OECD-WTO Trade in Value Added Data, OECD AMNE and OECD TEC statisticsTrade and investment by partner countryTrade measured from a value added perspective better reflects the bilateral relationships Gross bilateral trade figures can disguise the true nature of trade interdependencies, particularly betweenfinal consumers in one country and producers at upstream parts of the value chain. Value added dataindicate that the United States is actually a more important destination for Australian exports than Korea.On the import side, the United States moves ahead of China once value added data are used, whileSingapore falls behind the United Kingdom, Germany and New Zealand.Figure 13. Imports: gross and value added terms,by partner country, 20143530%3025%Partner share in totalPartner share in total %Figure 12. Exports: gross and value added terms,by partner country, 20142520151020%15%10%5%50%0USA CHN JPN GBR DEU NZL SGP IDN THA MYS KORCHN JPN USA KOR IND IDN GBR NZL MYS TWNDomestic value added exportsForeign value added in domestic final demand 2011ImportsGross exportsSource: OECD-WTO TiVA DataSource: OECD-WTO TiVA Data6
Figure 14, supplying the domestic market through trade and investment cannot be produced for Australiadue to data availability.Trade and investment by industryThe top manufacturing exporting industries in Australia are basic metals (MET), food and beverage (FOD)and chemicals and chemical products (CHM). The import content of exports varies across industries—illustrating the role that importing plays in supporting exports and indicating the degree of GVCintegration of these industries.Figure 15. Top exporting manufacturing industries in Australia, 2014Share in PImport content of exports (RHS)Source: OECD-WTO Trade in Value Added Data and OECD AMNE statistics. See page 9 for a decription of industry codes.Exports and imports go hand in hand Figure 16. Import content of exports and exportorientation90MET80Export OrientationAcross most industries there is a positive correlationbetween higher import content of exports and a highershare of their domestic value-added being mplementarity of exports and imports (Figure 16).Figure 17, which plots the share of value added byforeign owned firms and the import content of exports,cannot be produced for Australia due to datalimitations. Figure 18, goods trade by ownership andindustry, cannot be produced for Australia due to datalimitations.7060CHM5040PETMEQ TRQCEQTRNFODWOD TEX RBPMTRELQFBMPAP OTMNMMOTS3020100010203040Import content of exports50Source: OECD-WTO TiVA data and OECD AMNE statistics7
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 grosstrade statistics understate this as they cannot reveal the contribution that the upstream services industryplays in the production of goods exports. Accounting for this contribution, the services content ofAustralia’s total exports of goods and services was 49% in 2014 (Figure 19), below the OECD median of57%. Considering the services content of manufactured goods alone, 36% of manufacturing exportsreflects services value added, equivalent to the OECD average of 36%.Figure 19. Services content of gross exports for OECD countries, LSWEESPForeign Services VA content in VKCANKORNORCHLMEX0Total Domestic Services VA in ExportsSource: OECD-WTO TiVA DataGreater foreign investment in the servicessector is associated with higher services contentin exports. For Australia, the share ofinvestment in services is at the lower end forOECD economies which could contribute to itsrelatively low services content in exports.Figure 20. Share of services industries in foreignowned firms’ value added and domestic servicesvalue added share of gross exports, OECD countries,2014Domestic services value added share ofgross exports and so inward FDI in the services sectorcan be an important channel for exportsuccess60%GBRGRCFRALVADNKBEL E50%40%30%20%10%0%0%20%40%60%80%100%Share of services industries in foreign-owned firmsvalue addedSource: OECD-WTO TiVA Data and OECD AMNE statistics8
Links and data sourcesGuide to the trade and investment statistical t-statistical-country-notes.pdfActivity of Multinational Enterprises - AMNE www.oecd.org/sti/ind/amne.htmOECD Benchmark Definition of Foreign Direct Investment - 4th Edition (BMD4)(see Chapter 8 for information on the intersection of AMNE and FDI n.htmForeign Direct Investment (FDI) Statistics www.oecd.org/investment/statistics.htmTrade by Enterprise Characteristics - teristics.htmTrade in Value Added - edanoecd-wtojointinitiative.htmAnnex: Further data requirementsTo make this note as informative as those of other OECD countries, more detailed data about Australiantrade and investment are needed. Primarily, more complete data on foreign-owned firms or inward AMNEstatistics at the aggregate, industry and partner country level. Data on the value added by foreign-ownedfirms, their labour and personnel costs and gross operating surplus would greatly enhance the extent of theanalysis that could be completed (Figures 8, 9, 10, 11, 13,16, 17). Secondly, data on trade by enterprisecharacteristics (TEC) would benefit the analysis. This is important to investigate the role of domesticenterprises and whether Australia is at the start of GVCs, in this vein not only trade by domestic or foreign–owned firms, but information on the domestic enterprises; whether they are domestic MNEs or domesticnon-MNEs is important.9
Table of industry codesIndustry TypePrimary IndustriesManufacturingServicesInd CodeIndustry DescriptionAGRAgriculture, hunting, forestry and fishingMINMining and quarryingFODFood products, beverages and tobaccoTEXTextiles, textile products, leather and footwearWODWood and products of wood and corkPAPPulp, paper, paper products, printing and publishingPETCoke, refined petroleum products and nuclear fuelCHMChemicals and chemical productsRBPRubber and plastics productsNMMOther non-metallic mineral productsMETBasic metalsFBMFabricated metal products except machinery and equipmentMEQMachinery and equipment n.e.cCEQComputer, electronic and optical productsELQElectrical machinery and apparatus n.e.cMTRMotor vehicles, trailers and semi-trailersTRQOther transport equipmentOTMManufacturing n.e.c; recyclingEGWElectricity, gas and water supplyCONConstructionWRTWholesale and retail trade; repairsHTRHotels and restaurantsTRNTransport and storagePTLPost and telecommunicationsFINFinance and insuranceREAReal estate activitiesRMQRenting of machinery and equipmentITSComputer and related activitiesBZSResearch and development & Other Business ActivitiesGOVPublic admin. and defence; compulsory social securityEDUEducationHTHHealth and social workOTSOther community, social and personal servicesPVHPrivate households with employed persons OECD 2017. This note is published under the responsibility of the Secretary-General of the OECD. The opinionsexpressed and the arguments employed herein do not necessarily reflect the official views of OECD membercountries. This document and any map included herein are without prejudice to the status of or sovereignty overany territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city orarea. Please cite this note as: OECD (2017), Australia: Trade and Investment Statistical Note.10
Figure 8. Export orientation, foreign affiliates value added and import content of exports, 2014 Foreign value aded in exports (% in exports) Source: OECD-WTO Trade in Value Added Data and OECD AMNE statistics 0% 20% 40% 60% 80% 100% AUT DNK FIN FRA HUN ITA POL PRT ports Foreign-owned firms D
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