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Unclassified ECO/WKP(1)3 Organisation de Coopération et de Développement Economiques Organisation for Economic Co-operation and Development 1-Oct-1 English text only ECONOMICS DEPARTMENT ECO/WKP(1)3 Unclassified

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Unclassified ECO/WKP(1)3 Organisation de Coopération et de Développement Economiques Organisation for Economic Co-operation and Development 1-Oct-1 English text only ECONOMICS DEPARTMENT ECO/WKP(1)3 Unclassified TRADE LINKAGES AND THE TRADE MATRICES IN THE OECD INTERLINK MODEL ECONOMICS DEPARTMENT WORKING PAPERS NO. 31 by Laurence Le Fouler, Wim Suyker and Dave Turner Most Economics Department Working Papers beginning with No. 1 are now available through OECD s Internet Web site at English text only JT1197 Document complet disponible sur OLIS dans son format d origine Complete document available on OLIS in its original format ECO/WKP(1)3 ABSTRACT/RÉSUMÉ TRADE LINKAGES AND THE TRADE MATRICES IN THE OECD INTERLINK MODEL This paper provides a mainly graphical summary of the trade matrices underlying the OECD s international macroeconomic model Interlink. In doing so it gives a snapshot of the geographical nature of global trading relationships, in particular between individual OECD countries and the main non-oecd regions, distinguishing trade in manufactures non-manufactures and non-factor services. It also serves more broadly as a 'ready reckoner' guide to the sensitivity of shocks that are transmitted through trade. The sources and methods used to construct the matrices are also described in annexes. JEL code: F1, F, F7 Keywords: Trade, trade matrices, International macroeconomic model *** LES RELATIONS COMMERCIALES ET LES MATRICES DE COMMERCE DANS LE MODELE INTERLINK DE L OCDE Ce document résume sous forme principalement graphique les matrices de commerce qui sont à la base d'interlink, le modèle macroéconomique international de l'ocde. Ce faisant, il donne un instantané du caractère géographique des relations globales de commerce, en particulier entre les pays individuels membres de l'ocde et les principales régions non-ocde, en distinguant commerce de produits manufacturés, non-manufacturés et services hors revenus d'investissement. Ce document sert aussi plus généralement comme guide prêt-à-l'emploi de la sensibilité aux chocs transmis par le commerce. Les sources et méthodes utilisées à la construction des matrices sont aussi décrites en annexe. Copyright: OECD, 1 Applications for permission to reproduce or translate all, or part of, this material should be made to: Head of Publications Service, OECD, rue André-Pascal, 777 PARIS CEDEX 1, France ECO/WKP(1)3 TABLE OF CONTENTS Trade linkages and the trade matrices in the OECD Interlink model... Analysis of aggregate trade patterns...7 Analysis of the multilateral structure of trade...7 Bibliography... Box 1.Key to country and region abbreviations used in figures...9 Figures: 1. Shares in world good and services trade Share of total world goods and services exports, by value Share of total world services exports, by value Share of total world manufacturing exports, by value Share of total world non-manufacturing exports, by value Share of total world goods and services imports, by value...1. Share of total world services imports, by value Share of total world manufacturing imports, by value...1. Share of total world non-manufacturing imports, by value Share of manufacturing in good and services exports, by value Share of non-manufacturing in good and services exports, by value Share of services in good and services exports, by value Share of manufacturing in good and services imports, by value Share of non-manufacturing in good and services imports, by value Share of services in good and services imports, by value Goods and services exports (Nat. Acts) as a percentage of GDP Goods and services imports (Nat. Acts) as a percentage of GDP Geographical structure of goods and services trade of the United States Geographical structure of goods and services trade of Japan Geographical structure of goods and services trade of the euro area, excluding intra-trade Geographical structure of goods and services trade of the European Union, excluding intra-trade Geographical structure of goods and services trade of Germany Geographical structure of goods and services trade of France Geographical structure of goods and services trade of Italy Geographical structure of goods and services trade of the United Kingdom Geographical structure of goods and services trade of Canada Geographical structure of goods and services trade of Australia Geographical structure of goods and services trade of Austria Geographical structure of goods and services trade of Belgium...7 Page 3 ECO/WKP(1) Geographical structure of goods and services trade of the Czech Republic Geographical structure of goods and services trade of Denmark Geographical structure of goods and services trade of Finland Geographical structure of goods and services trade of Greece Geographical structure of goods and services trade of Hungary Geographical structure of goods and services trade of Iceland Geographical structure of goods and services trade of Ireland Geographical structure of goods and services trade of Korea Geographical structure of goods and services trade of Luxembourg Geographical structure of goods and services trade of Mexico Geographical structure of goods and services trade of Netherlands Geographical structure of goods and services trade of New Zealand Geographical structure of goods and services trade of Norway Geographical structure of goods and services trade of Poland Geographical structure of goods and services trade of Portugal Geographical structure of goods and services trade of the Slovak Republic Geographical structure of goods and services trade of Spain Geographical structure of goods and services trade of Sweden Geographical structure of goods and services trade of Switzerland Geographical structure of goods and services trade of Turkey Geographical structure of goods and services trade of China Geographical structure of goods and services trade of Dynamic Asia region Geographical structure of goods and services trade of Other Asia region Geographical structure of goods and services trade of Latin America region Geographical structure of goods and services trade of the Africa and Middle-East region Geographical structure of goods and services trade of the Non-OECD Europe region...3 Annex 1. Derivation of merchandise trade matrices... Annex. Derivation of the non-factor services trade matrix...7 Annex 3. The trade matrices and derivation of figures... Annex Tables: A1 Source and calculation of services matrix A Food matrix [SITC +1] A3 Raw materials matrix[sitc +] A Energy matrix [SITC 3] A Non-manufacturing matrix [SITC to ] A Manufacturing matrix [SITC to 9] A7 Total goods matrix [SITC to 9] A Services matrix A9 Goods and services matrix... -1 ECO/WKP(1)3 TRADE LINKAGES AND THE TRADE MATRICES IN THE OECD INTERLINK MODEL Laurence Le Fouler, Wim Suyker and Dave Turner 1 1. Which countries exports will be most affected by a slowdown in US imports? Which will be the recipients of increased exports orders as OPEC countries spend higher oil revenues? Which are most vulnerable to a marked rise in commodity prices? These are the sort of questions that the OECD s international macroeconomic model Interlink is routinely used to address. At the core of the model is a set of trade matrices that summarise the geographical nature of global trading relationships. 3 These matrices determine how a shock is transmitted from one economy to another via trade, using various intermediate constructs such as 'export market growth' and various measures of relative price competitiveness. This paper describes the trade matrices, and is also intended to serve more broadly as a ready reckoner reference guide to the sensitivity of economies to shocks that are transmitted through trade.. The dimensions of the trade matrices reflect the structure of the Interlink model: all 3 OECD Member countries are distinguished and the non-oecd area is divided into geographical regions (see Box 1); trade in goods is distinguished from trade in services, and the former is divided into manufacturing and non-manufacturing trade. The manufacturing and non-manufacturing matrices are largely based on data from the United Nations COMTRADE database, which provides a fairly comprehensive coverage of bilateral trade for the present purposes. However, data on bilateral trade in services relies more on national sources and is more patchy, so that some estimation/guesswork has been necessary to complete the matrix. Details on the sources and methods behind the construction of the matrices is given in Annexes 1 and. 3. The trade matrices are used to construct indicators of export market growth, export performance, relative export prices and relative import prices that are important in determining how a shock is propagated through trade. They also underlie the analysis that is used to ensure broad global 1. The authors are current and former members of the Macroeconomic Analysis and Systems Management Division of the Economics Department. They are grateful for earlier comments from Jørgen Elmeskov, Michael Feiner and Pete Richardson. Special thanks go to Rosemary Chahed and Jan-Cathryn Davies for document preparation.. See Richardson (19) for a general description of the Interlink model and Dalsgaard et al. (1) for an account of the recent simulation properties of the model. 3. The cells of a trade matrix can be represented in various forms, for example in terms of export shares or the absolute values of bilateral trade (in a common currency, usually US dollars). If each cell in a row of the matrix corresponds to the value of exports of a country to a particular trading partner, then providing there is a comprehensive coverage of trading partners then the row total will equal the sum of total exports of that country. Similarly each column total is equal to the sum of total imports of each trading partner. ECO/WKP(1)3 consistency in the international trade and balance of payments projections that are published twice a year in the OECD Economic Outlook. Indicators of export market growth, calculated separately for manufactures, nonmanufactures and non-factor services, represent the potential export growth for a country assuming that its market shares remain unchanged. Market growth indicators for each country are calculated as a weighted average of import volumes in all its markets, with the weighting pattern being derived from the share of its exports going to that market in a reference year. Indicators of export performance are calculated for each country by comparing its export volumes with its export market. This shows whether the country s exports grow faster or slower than its market, i.e. if over time it is experiencing market share gains or losses. The trade matrices are also used to construct various measures of relative price competitiveness, for example comparing a country s manufacturing export prices with the export price of competitors where the latter is calculated using the relevant trade matrix in a double-weighting system. The price of competitors is computed by weighting together the price of all competitors on a particular market, with all markets then weighted together according to the importance of each market to the exporting country concerned. The main determinants of manufacturing export volume growth in the Interlink model are then manufacturing export market growth and relative manufacturing price competitiveness. However, a range of competitiveness indicators can be calculated, for example according to whether competition is being evaluated on a country s export markets, on the home market or on both, see Durand et al. (199) and Durand et al. (199) for further details.. Bilateral trade flow data are published with a much longer delay than data on total imports and exports of a country. While for most countries data on total imports and exports are currently available for, firm data for the trade flow matrices are currently only available for 199. Thus, the matrices presented in this paper reflect the structure of multilateral trade in a reference year, in this case 199, suggesting some caution is required in using them as the basis for analysis of current shocks. For example, the importance of partner countries as a destination for exports is likely to evolve in line with partner countries growth in imports. As an illustration, Figure. shows that the share of world imports (in value terms) accounted for by the United States has risen appreciably between 199 and, consequently for many countries it is also likely to take a higher share of exports. This evolution of trade weights is captured in model simulation or projection; faster import volume growth in some partner countries will mean that their relative importance in export market growth will increase relative to the fixed coefficients in the matrices. A more fundamental problem occurs with using the trade matrices for those countries where there are reasons to suspect a substantial re-orientation of trade. For example the Czech Republic, Hungary and Poland, have recently experienced rapid structural change, disproportionate growth in trade and probably marked changes in the geographical composition of their trade since 199. A further potential problem is that small country trade flows in a particular year may be distorted by large one-off transactions, for example New Zealand importing a frigate or Iceland an aluminium smelter.. For a description of the sources and methods behind the projections in OECD Economic Outlook, see For a more precise algebraic definition of export market growth see Annex 3.. The model equations also allow for trend movements in market shares that cannot be explained by relative export price competitiveness, see Murata et al. (). ECO/WKP(1)3. The remainder of the paper consists of various graphical representations of the trade matrices, which can be categorised into two groups. The first group of charts ranks countries according to various measures of aggregate trade, whereas the second group provide an analysis of the structure of multilateral trade. Put another way the first group of charts provides various representations of the column and row totals of the trade matrices, whereas the second group represents the main body of the matrices. Full details of the matrices used as the basis for these calculations, as well as how the charts in the main paper are derived from them, are given in Annex 3. 7 Analysis of aggregate trade patterns. Figure 1 provides an overview of trade flows between the main regions in the reference year. Figures.1 to.1 rank countries according to their contribution to different components of global trade and also according to the relative importance of different components of trade for each country. In each case the analysis is shown for the reference year on which the trade matrices are based (199) and the most recent year () for which data is available. Figures.1 to. rank the relative importance of each country in world manufacturing, nonmanufacturing, non-factor services and total trade in goods and services; Figures.9 to.1 rank the relative importance of manufacturing, non-manufacturing and non-factor services in total trade in goods and services for each country; Figures.1 and.1 rank each country according to the weight of total exports and imports in GDP, using national accounts, rather than customs-based, data for imports and exports. Analysis of the multilateral structure of trade 7. With regard to trade structure, the majority of the charts, Figures 3.1 to 3.3, decompose the geographical structure of both exports and imports from the point of view of a single country or region. Thus, there is a separate figure for each OECD country and non-oecd region, each figure consisting of separate bar charts, the upper two analysing the geographical structure of that country s imports of goods and services and the lower two doing the same for exports. In addition Figures 3.3 and 3. repeat the analysis for the European Union and Euro area, in both cases excluding intra-regional trade.. Taking Figure 3.1, for the United States, as an illustrative example each of these bar charts is described below. The two upper bar charts provide an indication of the sensitivity of each country s exports to a change in US import demand: the upper bar chart ranks countries according to the absolute size of a change in demand for their exports, whereas the lower bar chart ranks countries according to the relative (compared to their total exports) size of a change in exports. Thus, bar chart (a) shows that Canada, Dynamic Asia and Japan together account for just under half of US merchandise imports, while in relative terms the second bar chart (b) shows that the United States is especially important as an export market for both Canada and Mexico, accounting for more than three-quarters of these countries' exports. The third bar chart (c) provides an indication of the most important markets for US exports in absolute terms, whereas the bottom bar chart (d) shows those countries which are most reliant on US exports in relation to their total imports. 7. The underlying trade flow data for 199 are available at M933.xls.. Trade data for the non-oecd in are based on preliminary estimates. 7 ECO/WKP(1)3 BIBLIOGRAPHY RICHARDSON, P. (19), The Structure and Simulation Properties of OECD s INTERLINK Model, OECD Economic Studies No. 1, Spring 19. DALSGAARD, T., C. ANDRÉ and P. RICHARDSON (1), Standard Shocks within the OECD INTERLINK Model, OECD Economics Department Working Paper No. 3. DURAND, M. C. MADASCHI and F. TERRIBILE (199), Trends in OECD Countries' International Competitiveness: The Influence of Emerging Market Economies , OECD Economics Department Working Paper No. 19. DURAND, M., J. SIMON and C. WEBB(199), OECD's Indicators of International Trade and Competitiveness OECD Economics Department Working Paper No. 1. MURATA, K., D. TURNER, D. RAE and L. LE FOULER (), Modelling Manufacturing Export Volumes Equations. A System Estimation Approach . OECD Economics Department Working Paper No. 3. ECO/WKP(1)3 OECD countries: AUS Australia AUT Austria BEL Belgium CAN Canada CZE Czech Republic DNK Denmark FIN Finland FRA France DEU Germany GRC Greece HUN Hungary ISL Iceland IRE Ireland ITA Italy JPN Japan KOR Korea LUX Luxembourg MEX Mexico NLD Netherlands NZL New Zealand NOR Norway POL Poland PRT Portugal SVK Slovakia ESP Spain SWE Sweden CHE Switzerland TUR Turkey GBR United Kingdom USA United States Box 1. Key to country and region abbreviations used in Figures OECD regions: NAFTA: USA, CAN, MEX. OECD Pacific: JPN, KOR, AUS, NZL. Euro area, EURO: AUT, BEL, FIN, FRA, DEU, GRC, IRE, ITA, LUX, PRT, ESP. European Union, EU: EURO, GBR, DNK, SWE. OECD Europe, EUR: EU, CZE, HUN, ISL, NOR, POL, SVK, CHE, TUR. Non-OECD regions: CHN China ANC Dynamic Asia (Chinese Taipei; Hong Kong, China; Indonesia, Malaysia; Philippines; Singapore; Thailand) ASO Other Asia (Non-OECD Eastern Asia and Oceania except China and Dynamic Asia) LAT Latin America (Central and South America except Mexico) AFM Africa and Middle-East (Africa and Western Asia) 1 SEE Non-OECD Europe (Non-OECD Central & Eastern Europe, former Soviet Union and Yugoslavia) Total WLD World (Sum of OECD countries and non-oecd regions) 1. Western Asia includes Israel, Bahrain, Cyprus, Iran, Iraq, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, the United Arab Emirates and Yemen. 9 ECO/WKP(1)3 Figure 1. Shares in world goods and services trade Main world regions trade as per cent of world trade Percent of region s exports 1 OECD Europe NAFTA OECD Pacific Dynamic Asia Rest of World 9 Rest of World 7 Dynamic Asia Intra-EU OECD Pacific NAFTA 3 Intra-euro area OECD Europe Percent of World exports 1 ECO/WKP(1) Figure.1. Share of total world goods and services exports, by value 199 ISL LUX NZL CZE POL FIN NOR AUS AUT SWE ESP CHN BEL NLD AFM GBR JPN ANC SVK HUN GRC PRT TUR
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