Sunday, July 10, 2011

10/07/2011: Irish Trade Stats: some interesting points

Here are some interesting end-of-year numbers for 2010 in terms of our external trade. Note - these are from OECD stats via ST Louis Federal Reserve database, so slightly off compared to CSO data. All are reported in Euro, unless otherwise specified.

First, consider the flows of trade and trade balance:
There is a clear regime shift in the data since 2009 with a rise in trade surplus. This confirms that Irish net external trade has entered a recovery stage post-crisis in 2009, not in late 2010-early 2011 as the IMF officials claimed recently. The second thing the chart highlights is the dramatic rise in trade balance in 2009-2010, even compared to the strong performance pre-2002. In fact, we reached beyond our trend (for 1997-2010 period) back in 2009.

This might suggest validity to the 'exports-led recovery' thesis, except for two issues:
  1. Two years are hardly a trend, especially if coincident with extremely robust global trade recovery post-crisis, and
  2. The trade balance is only relevant to Irish economy as a whole if we actually get to keep it here - in other words, if it accrues to companies with really sizeable investment and employment activities here. Note that in the chart above, the last two years have actually seen a negative relationship between growth in the economy and growth in the trade balance.
The latter issue is easy to see if we net out of the trade balance the remittances of profits and payments abroad, as done in the chart below:
Notice the decline in Net Factor Income from Abroad (NFIAF) in 2009-2010 period. This is linked directly (more closely than in the case of GDP and GNP changes) to our trade balance:
In other words, what gets produced here in terms of trade surplus gets remitted out of here. As we become more open to trade - as shown below - by any metric possible, we get more open to exporting profits and surpluses accumulated in the economy.
This is similar to an analogy of draining water out of a sinking boat with a coal bucket - when you scoop up water, the bucket is full, by the time you turn it overboard, the bucket is empty...

Some interesting correlations to that effect - all for data from 1997 through 2010, so small sample bias obviously is there:
  • Trade balance correlations with GDP and GNP are 0.613 and 0.543, but with NFIFA it is -0.866
  • NFIFA itself is correlated with GDP and GNP at -0.904 and -0.861.
So NFIFA has more sgnifcant links to GDP and GNP than our trade balance. In other words, the propensity of our MNCs to take out profits from Ireland has more effect on our GDP and GNP than the trade balance. The recovery, therefore, if it were to be driven by external trade, has less to do with our Exports and Imports, than with profits expatriation decisions by MNCs.
Post a Comment