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Key Statistics - article, November 1999, p. 7-10
Price indexes for services exports and imports1
Statistics New Zealand has added to the range of international trade indexes with the recent release of new price indexes for services imports and exports. The new indexes enable price and volume components to be analysed separately shedding more light on the role of international trade in services in the New Zealand economy. The price indexes also enable the real change in the value of trade to be seen, because the effects of inflation are excluded.
Background
In the last few decades the structure of world trade has changed. There has been a significant shift away from agriculture and traditional manufacturing to high growth areas such as high-technology products, and services such as tourism, telecommunications and education. International trade in services for OECD countries is worth around US$2,000 billion a year and is growing at an average rate of 8 percent per year.
The services sector plays an important role in the New Zealand economy, accounting for about 46 percent of total Gross Domestic Production (GDP). This makes it 2.5 times as large as manufacturing and almost 8 times as large as basic agricultural production. Services exports and imports in relation to GDP are both about 6.5 percent. In constant 1991-92 prices, services exports increased from $3,341 million for the year ended March 1983 to $6,991 million for the year ended March 1999. Services imports had a smaller rise, from $4,455 million to $6,008 million for the same period (see Figure 1a & b). Services exports as a proportion of total exports have remained fairly static over the years at around 24 percent. In contrast, services imports have shown a marked decrease, from 31 percent for the year ended March 1983 to 19 percent for the year ended March 1999.
The main purpose of the new indexes is to measure price changes of exports and imports of services. This is in contrast to the Overseas Trade Indexes for merchandise trade which measure price and volume changes for exports and imports of merchandise. One of the main uses of the new indexes will be to provide deflators for current value aggregates of services exports and imports for the expenditure-based Gross Domestic Product (GDP). This will enable constant prices to be calculated.
Methodology
The Overseas Trade in Services Price Index has been developed to conform as closely as possible to the System of National Accounts 1993 (SNA’93) concepts that are applicable to the service component of the External Transactions Account (ETA).
The SNA’93 recommends that the treatment of exports of goods and services is ‘... generally identical with that in the balance of payments accounts described in the Balance of Payments Manual (BPM5) ...’ SNA’93 (paragraph 14.88).
Hence the Balance of Payment’s current account is the main data source used to calculate the relative contributions of the various services to the indexes. To meet the deflation needs of National Accounts, the indexes have been produced for exports and imports of services at the following aggregated level (see Figure 2).
- Transportation services include all modes of transportation performed by residents of one country for those in another. Along with the movement of goods and passengers, it also includes supporting services such as port services. Freight insurance, however, is not included. Passenger transportation provided within a country by a resident carrier for a non-resident is not included in transportation services but in travel services.
- Travel services incorporate the purchases of all types of goods and services by non-residents visiting a country for one year or less. The one-year residency rule is relaxed for non-resident students and medical patients whose expenditure for the entire length of their stay is included in travel services.
- Government services cover the expenditure and income of embassies and consulates, defence forces and aid services operating in a foreign country, and the personal expenditure by diplomatic and military staff in the country where they are stationed. Embassies, military establishments and other official entities although located overseas are considered residents of the economies they are representing, so any transaction between these official entities and their host country is considered an export or an import of a service. Excluded are wage and salary payments to local staff.
- The other services categories cover a wide range of services. Insurance services are included with the value being based on an insurance service charge for the insurance service provided rather than on the gross premiums. Financial services are partially included. Explicit charges such as transaction and ledger fees are included, but the margins made by financial intermediaries are not included. Under SNA’93, royalties and licence fees are treated as services. Prior to this they were treated as property income and not included in the ETA. Services provided on a permanent basis by an overseas branch inside a country are not considered an export of a service from the parent company and are excluded. This also applies to major construction projects abroad even though they are for a fixed duration. Incomes relating to compensation of employees and property income, such as interest and dividends, are considered payments rendered in the course of production rather than an output of a production process and so are excluded.
A weighting process re-expresses the dollar value of expenditure or income for particular services or groups of services as index weights. In the service indexes these weights sum to 10000 for calculation purposes and 1000 for publication. The weights are calculated according to the relative importance of products and services within a service or service component. The following data sources were used to determine the weights: Balance of Payments surveys, import and export statistics, parliamentary reports, company reports, government departments’ records, producer boards’ reports and analyses by professional and business organisations.
Figure 3 shows the published regimen weights for the overseas trade index for services.
The published regimen is obtained by amalgamating the working regimen into broader categories and combined weights are specified as percentages. Table 1 shows the working regimen for the Overseas Trade Index for Services.
Prices used in the services indexes have been selected from those already collected for Statistics New Zealand’s Commodity Price Survey, from international price indexes, and from some new prices collected specifically for these indexes. Due to the difficulty of pricing some services, in many cases items have been used as proxies to represent a service such as the retail price of a software package for software royalties. In some cases due to the heterogeneous nature of the particular service, input prices have been collected. Typically, priced items are representative of a broad category or group of items where small weights have been added together.
An annually chain-linked Laspeyres formula is used to calculate the Overseas Trade Indexes for Services. The back series for the index has not been annually chain-linked but from the September 1999 quarter annual chain linking will be applied. The Laspeyres price index was chosen to meet National Accounts requirements that the index be consistent with their deflation practices in other areas.
Index results
While services exports and imports index results show movements in the same direction there are greater extremes of movement in the imports indexes. The imports index shows large increases from the December 1997 quarter to the September 1998 quarter followed by strong decreases for the last three quarters. Due to the low inflationary environment experienced worldwide in recent years, exchange rate effects have been the primary contributor to the movements in the imports index. This effect is highlighted when the quarterly imports index is compared with the quarterly average of the monthly Trade Weighted Exchange Rate Indexes (TWI) (see Figure 4).
The exports index has remained relatively static over the years with the exchange rate effect which can be seen in the imports index not so apparent due to many of the services being transacted in New Zealand dollars. Travel exports, the largest service component with a weight of 51 percent, are mainly responsible for the stable price movements, as these exports cover the goods and services purchased by international travellers while in New Zealand.
More detail regarding movements in the contributing indexes can be seen in the Hot Off The Press for Overseas Trade Price Indexes - Services: June 1999 which was published on 14 September 1999. In future the results of the Services Indexes will be published in conjunction with the Overseas Merchandise Trade Price and Volume Indexes.
Footnote
PrcIndServ.pdf (87 Kb)
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Exports and Imports
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