Page 111 - Special Topic Session (STS) - Volume 4

STS570 Nadim Ahmad et al.
changes. Globalisation has been associated with “innovations” in business
practices as corporations increasingly manage their production and sales
activities at a global level.
2. The focus of this short paper is on economic measurement, and
specifically on the impact of globalisation on the national accounts. How do
economic activities that are often not constrained by national boundaries
interplay with national accounts statistics, which are defined in terms of
residence. In particular, one can observe that the effects of globalisation make
national data harder to interpret, and, for certain types of analysis, they may
even be considered as a distorting influence on the data. Especially the role of
multinational enterprises (MNEs) and the growing emergence of global
production arrangements make the compilation and interpretation of national
accounts numbers less straightforward.
3. MNEs typically move profits around the globe with, amongst others,
the goal of minimizing their global tax burden. The potential to set up legal
and organisational constructs for this purpose has grown tremendously with
the increasing role of intangible assets in generating value added. Special
Purpose Entities, in essence brass plate companies with hardly any physical
presence, are being set up to charge fees for the use of intangible assets
whose legal ownership has been transferred to these units. Digitalisation has
further aggravated these problems to a significant degree. But it should be
added that not only intangible assets, also other movable assets, such as
transport equipment, lend themselves for setting up constructs, e.g.
operational leasing agencies, to benefit from favourable tax conditions in
some countries. Moreover, rock bands, football players and other wealthy
persons create similar constructs to avoid or to minimize tax payments.
4. The above type of arrangements have a direct impact on the allocation
of value added across countries, and therefore on the estimation of Gross
Domestic Product (GDP) of the countries involved. The paper discusses, in
Section 2, in more detail the impact these phenomena have on the accounting
of economic activities of a country. In Section 3, some proposals are being put
forward to arrive at an alternative way of dealing with these issues, with less
distorting consequences for national statistics. Section 4 concludes and
provides some points on the way forward. In this paper, the issues surrounding
the change in the interpretation of gross trade flows, resulting from global
production arrangements which lead to a multiplication of cross-border flows
in intermediate goods and services, will not be discussed. For a more detailed
discussion of these issues and on-going work to improve the evidence base,
reference is made to Ahmad and Ribarsky (2014).

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