Page 119 - Special Topic Session (STS) - Volume 4

STS570 Mary Everett et al.

Tracking the international footprints of global
firms
3
1
4
2
Mary Everett , Stefan Avdjiev , Hyun Song Shin , Philip Lane
1 Central Bank of Ireland
2 Bank for International Settlements
3 Bank for International Settlements
4 Central Bank of Ireland

Abstract
As the global economy becomes more integrated, there is a growing tension
between the nature of economic activity and the measurement system that
attempts to keep up with it. Many policies are still determined by measuring
economic activity at the national level. Since the typical unit of analysis is the
economic area (the “island”), economic activity is measured within the island
and in terms of transactions between islands. But, increasingly, companies and
their ownership are global, with economic activity taking place in a
geographically dispersed way. We analyse several important issues created by
this tension, show how they manifest themselves in the data and draw lessons
from them.

Keywords
International capital flows; financial globalisation; current account

1. Introduction
Our existing measurement framework for economic activity in national
accounts and the balance of payments is based on an “islands” view of the
global economy. Taking the economic area (the “island”) as their unit of survey,
analysts measure economic activity within the island and the transactions
between islands. In the simplest case, the workers, production processes,
1
headquarters, management and owners of firms are all located in the same
economic area, typically defined by a national boundary. The key concept in
national accounts is that of residence. National accounts convey information
on the activities of residents on the island. In simple cases, residence is clear-
cut. For a firm producing goods in a plant located on a single island, employing
workers from the same island and owned by residents on the island, the notion
of “residence” for the firm is straightforward. It coincides with the physical
location of the firm on the island. If such a firm exports goods, then the goods
will cross the boundary of the island into another island. Thus, exports will

1 The national accounting framework comprises the suite of macroeconomic and financial
statistics on the evolution of flows and stocks for an economy and its institutional sectors, as
well as their interactions with residents and non-residents. For an introduction to the system of
national accounts see Lequiller and Blades (2014).
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