Measuring the digital Economy

1. Measuring the digital Economy Jennifer Ribarsky Head of Section, National Accounts Division, OECD Marshall Reinsdorf (also contributed) Senior Economist, IMF 32nd Meeting of the Voorburg Group on Service Statistics 23 – 27 October 2017

2. Where is the digital economy in macroeconomic statistics? Digital transformation is critical to success of national economies, as a source of growth, enabler of trade, and key to competitiveness… Yet, economic evidence in official statistics is limited. U.S. International Trade Commission estimated that in 2011, digital trade increased U.S. GDP by between $517 billion and $711 billion (3.4 percent to 4.8 percent); increased average wages by 4.5 to 5.0 percent; and was the catalyst for the creation of up to 2.4 million jobs. (USITC, 2014)

3. Background Market capitalisation of Airbnb (£ Billions) Increased prevalence of ‘new’ transformative (digital) technologies But…. …. Declining productivity Trend labour productivity growth

4. The mismeasurement hypothesis

5. Very present in the public debate Charles Hulten: “Valuing the Net and the wide range of applications… is challenging…. and their omission or undervaluation surely affects GDP.” Why we’re measuring the digital economy in the wrong way The U.S. Underestimates Growth Charles Bean: “statistics have failed to keep pace with the impact of digital technology” Some optimists argue instead that the problem is one of measurement. Technological progress often raises productivity in ways that statistical agencies struggle to detect Diane Coyle: The pace of change in OECD countries is making the existing statistical framework decreasingly appropriate for measuring the economy The internet and the productivity slump

6. Response: Background • OECD Paper presented at the 2016 CSSP • Conceptualvs. Empiricalissues • Productionvs. Consumer Surplus vs. Welfare • Volumesvs. prices • Work at IMF Statistics Dept. • Paper for the IMF Executive Board on measurement issues and data needs in macroeconomic and financial statistics

7. OECD-IMF Joint WorkDigital Economy measurement • G20 requests • JointOECD-IMF paper on the impact of digitalisation on measurement of GDP: March 2017 • Most of the concerns reflect misunderstandings of GDP or involve effects that are small • But some deflators may be overestimated • More data are needed on the importance of e-commerce, the sharing economy (e.g. Uber, Airbnb), digital trade and other aspects • Alternative measures in the context of “Beyond GDP” could shed helpful light on welfare gains that are out of scope for GDP • JointOECD-IMF follow-up work on impact on other macroeconomic statistics, in particular on CPIs: March 2018 • Conductsurveys to determine country practices

8. Going Digital Horizontal Project • OECD’s project “Going Digital”, making the transformation work for growth and well-being • Multidisciplinary, cross-cutting initiative to help policymakers better understand the digital transformation that is taking place • Measurement is a key horizontal module: Developing new tools and a longer-term agenda for measuring the digital transformation • Co-leads: STD, STI, and TAD • Other directorates: CTP, ELS,GOV • CSSP mandate to create an Advisory Group on Measuring GDP in a DigitalisedEconomy

9. Potential mismeasurement issues • GDPis an adequate concept to measure market production, but concerns have arisen over a number of areas… • Prices and volumes • New forms of intermediation service • Free and subsidised consumer products • Consumers as producers • Certain assets not being measured • Cross border flows

10. Initial OECD-IMF work on some of the (potential) mismeasurement issues

11. Price indices for ICT assets and communication services Average annual growth rate in percentage, 2010-2015 (or latest available year) UK showed increases of nearly 3% per year Australia and France showed declines of more than 3% per year Notes: Data reported for Spain for ICT equipment and Computer software and database correspond to the period 2010-2014. Data reported for Austria for Communication services correspond to the period 2011-2015. Source: OECD National Accounts Statistics, OECD Productivity Database, OECD Prices and Purchasing Power Parities database, Australian Bureau of Statistics, U.S. Bureau of Economic Analyses and Statistics Canada, February 2017

12. Impact on GDP growth, using alternative ICT & communication prices Belgium shows largest impact 0.4%-points Most countries show around 0.2%-points

13. Estimated impact of “free” media activities on GDP growth, 2009-2013 Driven by web portals industry, increasing on average 20.6% between 2010 and 2013 Largest impact in the United Sates, the average annual growth rate would increase by 0.07%-points Average 2009-2013, percentage points Notes: Data for BEL, KOR and POL refer to 2012-2013, for FRA, GRC to 2010-2013 and for the USA to 2011-2013. Source: OECD calculations based on data from OECD SDBS database, OECD Annual National Accounts database and US Census Bureau data. The GDP deflator was used for deflation purposes.

14. Consumer durables and investment • Use of durables in production e.g. cars used for taxi-services to be (partly) treated as investments • No impact on GDP, but MFP may, in theory, be affected (based on initial research impact is small) • For example, in the UK, investment would increase by 0.04% and impact on MFP measures negligible.

15. Services and the Digital Economy The Issues

16. Services and the Digital Economy: The Issues (1) • Digital matching platforms intermediate peer-to-peer transactions in the sharing economy, including resales of goods, ride-sharing, home-sharing, business services, many kinds of tasks for households, lending and crowd-funding • Income of services providers may be included in tax data, but without the information to separately identify and properly classify • Bundled prices of different services • On-demand rentals of the digital platform’s own assets (vehicles, bicycles, … ) are growing in importance • Cloud computing: software as a service, infrastructure as a service, platform as a service, … • Data as an information service, as an input into market production, and into households’ nonmarket production

17. Services and the Digital Economy: The Issues (2) • Measurement of price change, or of welfare change, when: • digitalisationcauses substitution to free, or low-cost, alternatives • digitalisationor digital technology causes quality changes • digitalisationenables self-service to replace market services (travel agents, … ) • e-commerce and information from digital platforms enable improved access to variety • Measurement of, and dissemination of data on, exports and imports of digitally ordered (e-commerce), platform enabled, and digitally-delivered services, including: • Digital downloads/digital streaming • Services of households active in the gig economy • Households producing content and selling internationally

18. Services and the Digital Economy: The Issues (3) • E-commerce • Is their confusion as the whether e-commerce transactions are limited to sales of digitally ordered products made via wholesale and retail trade activity? • Margin revenue of digital platforms included in measures of the digital economy; and of the value of goods and services that are sold via the digital platforms reported as supplementary information • Underestimation of trade flows due to e-commerce transactions below the reporting threshold • OECD-IMF survey on digital trade identified possible improvements in estimations for trade below de minimisthreshold

19. Cross border flows • Significant measurement challenges • E.g., intra-firm transactions in data, intellectual property, and digital services • Relocation to low tax jurisdictions of intellectual property and associated relocation of production of (digital) goods/services • Challenges include distinguishing from distributions of income • Cross-border flows of advertising-supported free digital media, free data, and free services used as intermediate inputs • Inter-Agency Task Force on International Trade Statistics, chaired by the OECD and WTO • Developinga frameworkfor measuring digital trade • Input intoG20 Trade and Investment Working Group

20. Results from surveys sent to NSOs

21. Digital intermediaries (1) • Gross or net recording of transactions facilitated by digital intermediaries varies • Depends on business operating model (receives intermediation fee or the full amount and deduct costs) • Probably varies by type of activity • Classification does not appear to be consistent across countries • Some classify with the provider of the services • Some said it depends on how the transaction is arranged

22. Digital intermediaries (2) • Digital intermediary is often resident abroad • Identified as an important data gap • Many noted currently not reflected in trade data • Difficult to obtain relevant information because countries do not collect information from non-resident providers • Possible sources: credit card information, household surveys, and administrative records

23. Price measurement: Streaming Services • Few take into account the change in the offered contents as a change in quality (5 yes; 13 no) • Why not take into account? • This type of service is not included in the national price index (e.g. CPI) • No data availability to make a quality adjustment • Country simply prices the monthly subscription fee. • NL questioned whether this should be considered a quality change. Does the consumer have a choice or not?

24. Price measurement: Accommodation Services • Few include accommodations booked through digital platforms in their CPI (Yes: 4; No: 15) • Denmark noted that these transactions are considered as transactions between households and thus not included. • Sweden said that these are not currently included, but that it is being considered • The transaction (apart from the digital based facilitation services) is C2C • Depending on how the transaction is recorded, the bulk of the value remains within the same sector (HH)

25. E-commerce transactions in CPI

26. E-commerce transactions in PPI

27. Wayforward

28. Way forward • Further research into potential sources of mismeasurement: • Active involvement in G20 work, jointly with IMF • Country presentations on the digital and sharing economy at WPNA 9-10 November 2017 • Work plan of OECD Advisory group: • Typology of digital economy • Meeting of the AG 10 November 2017 • Proposal for an agreed satellite account • Research into potential data sources • Indicators to better highlight the digital economy

29. Thank you!