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Scottish Economic Statistics 2007

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Estimation of Scottish exports to the Rest of the UK

Carol Ann Munn, Scottish Executive

Introduction

This article is the first in a series of consultation papers by the Scottish Executive aimed at generating discussion around the estimation of Scottish trade within the UK.

It highlights the difficulties surrounding the measurement of Scottish trade with the Rest of the UK and describes the official method used to estimate the value of exports to other UK countries. Comments and feedback are invited on this process and the provisional results presented here should be treated with caution.

Issues

In general, identifying the value of exports from Scotland to any other country is difficult due to many technical and definitional issues. In National Accounts terms, Scotland is a region of the UK and there is no legal requirement for companies to report financial information at a sub - UK level. Hence surveys are required to estimate the flow of Scottish goods and services.

When responding to surveys businesses may not always recognise the concept of a service sector export: one does not automatically regard the sale of service ( e.g. a hotel room to a non Scottish-domiciled customer) as being a typical export. This can lead to under-reporting in particular sectors which necessitates further investigation and adjustments.

With an increasing number of companies operating on a global level and not on a geographical basis, goods are often transferred between different locations of the same company ( i.e. toll manufacturing or transfer pricing). This makes it difficult or near impossible to attribute the sales to any one country or region. Similarly, service sector multinationals ( e.g. management consultancy firms) often cannot divide work projects, and the corresponding sales, into location of customer.

More specifically, identifying intra- UK trade flows suffers from these difficulties but to a higher degree. Large companies operating across the whole of the UK are typically not structured in a way which allows them to identify Scottish activity separately.

This amplifies the problem of intra-company distribution within the UK as does the growing trend of warehouse distribution ( e.g. through online purchasing). Consequently it is theoretically more difficult to identify where the sales of a product should be attributed.

In theory, under National Accounting principles, sales from Scotland to the UK continental shelf should be classed as exports to the rest of the UK. However in practice this is particularly difficult for companies to identify and it is likely to be under-reported. An additional question included in the 2006 Global Connections Survey should identify companies operating on the UK continental shelf and this will be analysed in due course.

These issues and the various sources of trade estimates were discussed previously in Article A3 of Scottish Economic Statistics 2005 1.

Global Connections Survey

Introduced in 2002 by the Scottish Executive in partnership with Scottish Development International ( SDI), the Global Connections Survey ( GCS) is the basis of the official current price export estimates produced by the Scottish Executive. The GCS collects information on the exports of both goods and services from Scottish businesses and is the only international trade survey covering the whole economy in Scotland. These official statistics are collated in accordance with UK National Accounts 2 principles.

In addition to collecting information on exports, GCS also assesses the international links of Scottish businesses with particular strategic markets such as USA, China and Germany. Furthermore, GCS identifies any barriers to exporting and forms of assistance that would benefit the Scottish businesses in the international market, allowing SDI and Local Enterprise Companies ( LECs) to offer their advice in specific areas.

GCS export figures feed into Scottish Input-Output (I-O) tables and the Scottish quarterly Index of Manufactured Exports ( IME), both produced by the Scottish Executive, consistent with National Accounts methodology. The redesigned 2006 GCS questionnaire includes a question on imports which the I-O tables can draw upon, strengthening the consistency between the sets of economic statistics.

Sampling Methodology

With over 120,000 businesses operating in Scotland, collecting export information on each one would be very time consuming, expensive and be an unnecessary burden on Scottish businesses. Surveying a representative sample of companies allows us to yield sufficiently accurate estimates which are adjusted for non-response.

Responses to the GCS are supplemented with information from other UK surveys supplied by the Office for National Statistics ( ONS). Estimates from UK surveys take a share of UK exports using Scottish employment, unless additional information is available to adjust for Scottish activity.

These are then weighted to be representative of all companies in the population of Scottish businesses on the Inter Departmental Business Register 3 ( IDBR), based on turnover. (This population dataset forms the grossing basis for other Scottish and UK economic statistics including the quarterly index of Gross Domestic Product ( GDP) and the Index of Manufactured Exports ( IME).)

The precision of estimates is further improved by stratifying or grouping businesses by the number of employees, industrial classification, location and whether they were sampled as a known exporter. Outliers pre- and post-grossing are investigated on a case-by-case basis, triangulating the various sources available and contacting the companies where necessary to obtain the best estimate possible.

Destinations of exports are weighted in a similar way, but there are few supplementary data available. Where data are missing from major companies in a sector, the estimates are subject to a higher degree of sampling error, particularly for uncommon destinations. For this reason, only export figures estimated for the top 20 destinations are published.

Exports to the rest of the UK

Where companies are unable to provide exact turnover figures for Scotland but only the UK as a whole, companies are encouraged to estimate the proportion of sales accounted for by their Scottish operations. This can be via employment ratios or based on the known levels of activity at a particular location ( e.g. if location X is known to make Y amount of computers per year).

Whilst international exports produced from the GCS can be supplemented with other data, there is no other source of company level data on trade with the rest of the UK. Therefore the level of imputation and estimation is higher than overseas exports figures. Estimates are likely to be less reliable and subject to a higher degree of sampling error as they are based on fewer companies.

Results

Estimates of exports from Scotland to overseas countries, split by industry, employment band and destination are published annually by the Scottish Executive in December. The estimates for 2002 to 2005 can be found in tables 1.8 and 1.9 of chapter 1 of this publication.

Preliminary estimates of Scottish exports to the rest of the UK can be found in table A3.1. These estimates are "experimental" in that they are being published for consultation purposes and should be used with extreme caution.

Chart A3.1 shows that in 2005 over half of Scottish trade with the rest of the UK was attributed to the service sector. This is largely made up of the Business & Financial sectors (33%) and the wholesale, retail, hotels and transport sectors (20%). Within manufacturing, the 'other manufacturing' sector (consisting of textiles, woods, papers & publishing) accounted for 14 per cent of sales to the rest of the UK, followed by the food & drink sector (7%). The metals and electronic sectors both accounted for 6% each.

Chart A3.1: Scottish export estimates to the rest of the UK, by industry, 2005

image of Chart A3.1: Scottish export estimates to the rest of the UK, by industry, 2005

Source: Global Connections Survey 2005
1 Includes construction

Table A3.1 shows that Scottish exports to the rest of the UK were estimated to be worth £41.5 billion in 2005. This was an increase of £305 million (or 1%) since 2004 and an increase of £8.6 billion (or 26%) on 2002 estimates. This growth over the three-year period was largely driven by growth within the Wholesale, Retail & Repairs, Hotels & Restaurants sectors which experienced an overall increase of £4.5 billion (or 52%), closely followed by the Business Services sector ( £2.2 billion or 26%).

Chart A3.2 compares the estimated value of exports to the rest of the UK with those to the rest of the world, by industry. It is apparent that whilst exports to the rest of the UK are made through sales in the service sector, exports to the rest of the world are largely through the manufacturing sector.

However, this may be due to under-reporting by companies unable to determine whether goods originate from Scotland as opposed to the UK or an increased sampling error due to a lower response rate. The Electronics and Food & Drink sectors were the only industries where exports to the rest of world exceeded those to the rest of UK.

Table A3.1: Experimental exports estimates from Scotland to the rest of the UK, by industry sector, 2002 - 2005 (£ million)

( SIC 2003 code)

Industry Grouping

Estimated RUK Exports (£m)

2002

2003

2004

2005

01, 02, 05

Agriculture, Forestry & Fishing

340

415

490

355

10, 11, 13, 14

Mining, Quarrying & Extraction of Petroleum

1,070

1,290

915

830

15

Manufacture of Food Products and Beverages

2,710

2,580

2,685

2,760

15.91

Of Which Manufacture of Distilled Potable Alcoholic Beverages

585

560

495

630

17

Manufacture of Textiles & Textile Products

260

235

245

210

18

Manufacture of Wearing Apparel; Dressing and Dyeing of Fur

155

160

70

100

19

Tanning and Dressing of Leather; Manufacture of Luggage; Handbags, Saddlery, Harness & Footwear

25

15

20

30

20

Manufacture of Wood & of Products of Wood & Cork, Except Furniture; Manufacture of Articles of Straw & Plaiting Materials

365

335

425

455

21

Manufacture of Pulp, Paper & Paper Products

650

575

580

555

22

Publishing, Printing and Reproduction of Recorded Media

560

510

260

380

23, 24

Manufacture of Coke, Refined Petroleum Products & Nuclear Fuel, Manufacture of Chemicals & Chemical Products

640

785

910

785

25

Manufacture of Rubber & Plastic Products

520

460

460

415

26

Manufacture of Other Non-Metallic Mineral Products

200

165

160

200

27

Manufacture of Basic Metals

240

110

205

110

28

Manufacture of Fabricated Metal Products, Except Machinery & Equipment

780

790

605

595

29

Manufacture of Machinery & Equipment Not Elsewhere Specified

620

780

650

645

30

Manufacture of Office Machinery & Computers

1,025

1,480

1,095

1,220

31

Manufacture of Electrical Machinery & Apparatus Not Elsewhere Specified

315

330

320

260

32

Manufacture of Radio, Television & Communication Equipment & Apparatus

500

555

500

375

33

Manufacture of Medical, Precision & Optical Instruments, Watches & Clocks

620

535

675

565

34

Manufacture of Motor Vehicles, Trailers & Semi-Trailers

315

340

315

345

35

Manufacture of Other Transport Equipment

355

570

825

750

36

Manufacture of Furniture; Manufacturing Not Elsewhere Specified

175

140

145

125

37

Recycling

10

20

25

30

40, 41, 45

Electricity, Gas & Water Supply, Construction

2,660

3,920

5,070

3,750

50, 51, 52, 55

Wholesale 1, Retail & Repairs, Hotels & Restaurants

4,020

6,690

8,180

8,495

60, 61, 62, 63

Land, Water & Air Transport & Auxiliary Transport Acitivities

1,695

1,775

2,000

1,975

64

Post & Telecommunication

165

325

90

135

65, 66, 67

Financial Intermediation

6,795

6,940

6,370

7,340

70, 71

Real Estate & Renting

320

610

595

510

72, 73, 74

Business Services 2

3,845

4,000

4,705

6,050

80

Education

430

360

465

510

85, 90, 92, 93

Other Services 3

495

535

1,150

660

Total Rest of UK Exports

32,870

38,355

41,210

41,515

Notes:
1 Wholesale figures include the wholesale of agricultural products, fish and crustaceans & molluscs.
2 Business Services include the following activities: computer and related activities; research & development; legal, accounting, book-keeping and auditing activities; tax consultancy; market research; public opinion polling; business and management consultancy.
3 'Other Services' includes the following activities: Health and other community activities, social and personal service activities.
4 Industry estimates have been independently rounded to the nearest £5 million, so may not always sum to the total.
Source: Global Connections Survey 2005

Conclusion

Estimating sales by companies based in Scotland to England, Wales and Northern Ireland is a challenging task. The conceptual and technical difficulties mean that a degree of estimation and assumption is required to obtain an estimate of the actual value.

The Scottish Executive's GCS is the only official trade survey covering all sectors of the Scottish economy and is produced in line with National Accounts definitons, drawing on all trade information available to triangulate estimates.

Recent steps to align further the economic statistics produced by the Scottish Executive have improved the consistency between them and this link will be strengthened as additional import data and a larger export time series is obtained. Responses to the redesigned GCS 2006 will further improve our knowledge of companies operating on the UK continental shelf, which will be beneficial in the future analysis of exports.

Results presented here show the steps that have been taken in trying to overcome these difficulties and produce an analysis that can be built upon in the future.

Feedback and comments on the methodology are invited and should be directed to economic.statistics@scotland.gsi.gov.uk

Chart A3.2: Scottish estimates of exports 1 to the rest of the UK and the rest of the world (£ billion) 2005

image of Chart A3.2: Scottish estimates of exports1 to the rest of the UK and the rest of the world (£ billion) 2005

Source: Scottish Executive: Global Connections Survey 2005
1 Excluding exports to the rest of the UK
2 Includes construction