Page 121 - Special Topic Session (STS) - Volume 4

STS570 Mary Everett et al.
corporate group is assigned to the country of headquarters, no matter where
4
its constituent operating units may reside.
Since the national accounting framework was developed in the 1930s and
1940s, the activities of global firms and the structure of the global economy
have undergone profound changes. Balance of payments accounting has
adapted to changes in economic reality, with the latest standard being the
sixth edition of the IMF’s balance of payments manual (known as BPM6),
published in 2009 (IMF (2009)). However, the pace of globalisation has
arguably outstripped the pace of innovation in the measurement rules,
increasing the tension between the nature of economic activity and the
measurement system that strives to keep up with it. Increasingly, companies
are global, as is their ownership, with economic activity taking place in a
geographically dispersed way. Understanding the impact of macroeconomic
developments, financial price movements or public policies on corporate
decisions requires the rearrangement of institutional units dispersed across
the world into corporate groups on the basis of ownership and control. And
yet measurement is still largely residence-based, classifying institutional units
by attributing a location of “predominant economic interest” to each entity.
5
As corporate activity increasingly straddles national borders, it takes place
through many separate legal entities that together span the globe. A
manufacturing operation and its workers can be sited far from the
headquarters of the firm, and far from its other operations, such as marketing,
sales, or research and development. Ownership is also global, since the
investors of a listed firm are spread around the world. The jurisdiction in which
a company is headquartered (its domicile) may reflect the firm’s origin and
history, or simply tax or corporate governance considerations. Domicile
applies to a firm’s assets, which need not be only physical capital but can
include intellectual property used to create value.
In this article, we go over a number of the key issues raised by the tension
between the traditional residence-based measurement system and the
evolving nature of globalisation. In many instances, the consolidated approach
has the potential to provide a useful alternative perspective. That said, given
the increasingly complex nature of the global economy, there are no
straightforward ways to comprehensively address many important economic
questions using a single measurement framework. Instead, one needs to
extract information from multiple frameworks, using an approach tailored to
the specific question at hand.

4 The country in which economic decisions are taken may be different from both the country of
residence and the country of headquarters.
5 There are several data sets that represent notable exceptions to the above pattern. We discuss
those in the last section of this article.
110 | I S I W S C 2 0 1 9