Estimating Price Trends of

Industrial Countries’ Exports to OPEC

U. S. Department of Labor 

Bureau of Labor Statistics 

1977

Bulletin 1969

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Estimating Price Trends of

Industrial Countries’ Exports to OPEC

U. S. Department of Labor

Ray Marshall, Secretary

Bureau of Labor Statistics

Julius Shiskin, Commissioner

1977

Bulletin 1969

For sale by the Superintendent of Documents, U.S. Government Printing Office

Washington, D.C. 20402

Stock No. 029-001-02057-1

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Preface

This bulletin reviews problems implicit in estimating price trends o f industrial countries’ exports to OPEC,

describes the approaches used by investigators w ho have attempted to estimate these trends, and discusses the

results obtained by using different price data. Estimates o f industrial countries’ export price trends presented at the

end o f this study are unique in that specification export price data, where available, are utilized in their

construction. These price trends are restricted to merchandise trade and exclude transactions involving services and

military goods. Bibliographic references are indicated in brackets and are listed at the end o f the study.

This study was prepared in the Division o f International Prices (Office o f Prices and Living Conditions) o f the

Bureau o f Labor Statistics by Edward E. Murphy and Jorge F. Perez-Lopez. The authors are grateful to Robert

Gillingham, Irving Kravis, John Layng, John Suomela, and Jack Triplett for helpful comments and suggestions, to

William Alterman, David Malmquist, and Glenn Stadsklev for system and programming assistance, and to Yu Ju

Tien for translation o f Japanese materials.

Material in this publication is in the public domain and may be reproduced without the permission o f the Federal

Government. Please credit the Bureau o f Labor Statistics and cite the name and number o f the publication.

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Contents

Page

Part I: The estimation problem ...............................................................................................................................................

Price trends of industrial countries’ exports to the world as proxies for those to OPEC ............................................ 1

Differences between industrial countries’ export price trends and OPEC’s import price trends ............................... 2

Limited coverage of industrial countries’ export price indexes .................................................................................... 2

Part II: Export prices and export unit values .................................................................................................................... 3

Part III: Data ......................................................................................................................................................................... ^

Part IV: Industrial countries’ price trends of exports to OPEC: Some alternative calculations................................... 8

Export price trends: Estimates for Germany, Japan, and the United States ............................................................. 8

Export price trends: Estimates for all industrial countries .......................................................................................... I 10

Comparison of industrial countries’ merchandise export price trends with oil price trends ..................................... j 10

PartV: Summary ................................................................................................................................................................... 13

Tables:

1. Coverage in 1973 of indexes of U.S. export unit values, by economic class ......................................................... 5

2. U.S. exports to the world and to OPEC during 1973, by SITC section .................................................................. 7

3. Export price indexes for Germany and Japan, and specially constructed U.S. price index to the world,

1970-76 ......................................................................................................................................................................... 9

4. Aggregate measures of export price trends for Germany, Japan, and the United States weighted by each 

country’s share of exports to OPEC in 1974, selected quarters and period-to-period percent changes,

1970-76 ................................................................................... 9

5. Percent changes in aggregate measure of export prices for Germany, Japan, and the United States weighted

by trade with OPEC, as measured by export unit value indexes, 1970-76 .............................................................. 11

6. Percent changes in aggregate measure of export prices for Germany, Japan, and the United States weighted

by trade with OPEC, as measured by export price indexes, 1970-76 ...................................................................... 11

7. Aggregate measures of export price trends for 14 industrial countries weighted by each country’s share of

exports to OPEC in 1974, for the years 1970-76 ..................................................................................................... 12

8. Comparison of percent changes in alternative estimates of industrial countries’ export prices to OPEC and in

estimates of OPEC’s oil price per barrel ................................................................................................................ 13

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Estimating Price Trends of Industrial Countries’ Exports to OPEC

The trends o f prices paid by members o f the Organization o f Petroleum Exporting Countries (O PEC)1 for

products purchased from the developed countries has

recently received much attention in the context o f the

possible impact o f imported inflation on the purchasing

power o f the oil exporters. Investigators w ho have

attempted to estimate these trends have been faced with

conceptual and data difficulties that have made it

necessary to use restrictive assumptions and proxy

variables that are not satisfactory in important respects.

Part I below discusses some o f the basic problems in

estimating price trends o f industrial countries’ exports

to OPEC and describes the m ethodology followed by

investigators w ho have developed their own estimates.

The nature o f export price indexes and export unit

value indexes, the tw o types o f external price data

available for investigators to use for making their

estimates, are described in Part II. Some conceptual

and practical differences in the construction and uses o f

the tw o measures are also outlined. Export price data

for the industrial countries are described in Part III and

are used in Part IV to estimate industrial countries’

export price trends to OPEC. Estimates obtained using

different types o f price data are compared with each

other and with an estimate o f the trend o f prices

received by OPEC per barrel o f oil. Part V summarizes

the findings.

Part I. The estimation problem

The main obstacle to analyzing the price trends o f

goods and services imported by OPEC from the

industrial countries2 is that import price data are not

available for any o f the OPEC members. An exception

is Kuwait, for which an annual import unit value index

is available with about a 2-year lag. In addition,

Venezuela and Iran survey domestic wholesale selling

prices o f some imported products in their respective

wholesale price indexes.3 In general, however, domestic prices o f imported goods are not satisfactory proxies

for import prices because the former include, in addition to the import prices, domestic value added (unloading and wharfing charges; inland transportation;

any further manufacture and/or handling; mark-ups

and profits) and duties, if applicable. Since all these

costs can vary independently with respect to the basic

import prices, domestic price trends are generally'

considered to be poor proxies for import price trends.

Thus, in the absence o f OPEC import price data,

investigators have relied on export price trends o f the

countries that supply goods and services to OPEC in

order to estimate import price trends for OPEC. This

approach, however, encounters such conceptual questions and data limitations as:

(1) the nature o f the proxy relation between a group

o f countries’ export price trends to the world and the

same group o f countries’ export price trends to a region

or group o f countries;

(2) the nature o f the proxy relation between a group

o f countries’ export price trends to the world and

another group o f countries’ import price trends for the

same internationally traded items;

(3) the lack o f price trend data for internationally

traded services and military goods; and

(4) the need to choose between tw o fundamentally

different price measures—export price indexes and

export unit value indexes—to estimate export price

trends.

The first three points are discussed briefly in the

following paragraphs. The fourth problem, though

recognized in the literature on measurement o f economic variables, appears not to have been treated in

quantitative work o f investigators w ho have attempted

to estimate import price trends for OPEC. Because the

tw o price proxies are different in both nature and

performance, the fourth problem is discussed in detail

in Part II.

Price trends of industrial countries’ exports to the

world as proxies for those to OPEC

Ideally, industrial countries’ price trends o f exports

to OPEC should be calculated using prices o f transactions with OPEC weighted by the value o f shipments to OPEC. H owever, the industrial countries’

1In mid-1976, the members of the Organization of Petroleum

Exporting Countries, which was created in 1960, were Algeria,

Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria,

Qatar, Saudi Arabia, United Arab Emirates, and Venezuela.

2The “industrial” countries, as used throughout this paper, follow

the designation of the International Monetary Fund. The countries

are Austria, Belgium, Canada, Denmark, France, the Federal Republic o f Germany, Italy, Japan, Netherlands, Norway, Sweden, Switzerland, the United Kingdom, and the United States. All are members

o f the Organization for Economic Cooperation and Development.

3For a description o f the series see [27]. The series are published in

[11].

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merchandise export price measures currently available

are constructed to represent price trends o f exports to

the world. Thus, the sample o f products that enters into

the calculation o f either export price indexes or export

unit value indexes refers to transactions with all partner

countries, and not specifically with OPEC members.

Further, the aggregation weights used to calculate the

indexes refer to the distribution o f industrial countries’

exports to the world.

The use o f trends o f industrial countries’ published

export prices to the world to represent their export

price trends to OPEC implicitly assumes:

(1) that price trends for industrial countries’ merchandise exports to OPEC and to the world are the

same and

(2) that the commodity composition o f exports from

the industrial countries to the world and to OPEC are

the same.

N o data are available to test the first assumption, i.e.,

whether or not some industrial countries practice price

discrimination against or in favor o f OPEC members.

On the second assumption, there is some evidence

indicating that the distribution o f U.S. exports to the

world and to OPEC are somewhat different at the

aggregate product class level. It has not been feasible

here to analyze the distribution o f other industrial

countries’ exports to the world and to OPEC because

o f lack o f resources. In any case, even if it were

possible to determine the extent o f the disparities in the

tw o distributions, their impact on the published indexes

could not be calculated since indexes using each o f the

countries’ distribution o f exports to the world and to

O PEC as weights are not available.

Differences between industrial countries’ export

price trends and OPEC’s import price trends

Using industrial countries’ merchandise export prices

to estimate OPEC import prices implicitly assumes that

trends in these tw o measures are identical. Typically,

however, there are differences between the price o f a

product paid to the exporter and the price for that same

product paid by the importer as it arrives at the country

o f destination. In general, these price differences arise

because in addition to the products’ purchase price, the

import price takes into consideration other charges

involved in delivering the product to the importing

country. In most cases, the buyer bears the costs

associated with the movement o f the goods from the

exporting country to the importing country such as

freight charges, insurance, demurrage, warehousing

charges at the port, accessorial services (for example,

protecting goods from damage from heat, cold or

moisture) and heavy lift charges, if any, for loading the

goods on board vessel. In addition, the buyer usually

pays applicable export taxes, duties, and expenses in

obtaining the proper importation documents. Further

charges may occur if goods are transshipped or if title

passes through an intermediary. These various transactions and shipping costs can be expected to result in

a product’s price being higher at the country o f

importation than at the port or land border o f the

country o f exportation.

If trends in freight, insurance, and other service

charges are different from trends in product prices,

price trends o f exports will be different from the price

trends o f imports. For example, if freight and insurance

charges rise more rapidly than product prices, then

import prices will rise more rapidly than the export

prices for the same goods; if freight and insurance

charges rise less rapidly than product prices, then the

reverse will be true.

There is some indication that freight and other costs

associated with the movement o f products to some

O PEC countries increased significantly immediately

after 1973, partly as a result o f congestion o f port

facilities in some OPEC countries brought about by the

rapid growth in imports. For example, OPEC merchandise imports f.o.b. from all countries during 1972 and

1973 amounted to $14.7 and $21.4 billion, respectively.

Imports increased to $39.0 billion in 1974 and $61.8

billion during 1975.4 It was reported [36, p. 8] that this

rapid rise in the volume o f OPEC imports led to

instances in 1974 and 1975 where ships waited up to 60

days to unload at OPEC ports and that demurrage

charges o f $4,000 per day per ship, spoilage, and other

losses have not been uncommon [18]. Press reports [6]

suggest that in some cases shippers resorted to expensive air transport in order to obtain timely deliveries.

A s such conditions becom e the rule, rather than the

exception (and no attempt has been made here to

determine actual conditions), then an index o f OPEC

import prices might rise faster than an index o f export

prices o f goods to OPEC. On the other hand, as such

conditions are moderated and these additional charges

are reduced, changes in export prices and OPEC

import prices might tend to converge.

Limited coverage of industrial countries’ export

price indexes

A ll o f the industrial countries currently publish some

sort o f export price data for merchandise sales to the

world. A t the present time, however, none o f these

countries publishes a price series for exports o f services.

Since services made up about one-third o f total OPEC

Estim ates in [11, p. 44]. Note that elsewhere in this same

publication ([11, p. 37]), OPEC imports valued c.i.f. anomalously are

shown to be less than its merchandise imports valued f.o.b.

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imports in 1975 [11, pp. 44-50], the lack o f any price

data in this area poses a serious problem for which

there is no ready solution.

Another related problem is that the export price data

currently available generally refer directly to nonmilitary merchandise trade only. Price trends o f military

merchandise exports are not usually covered. In sum,

the available export price data from the industrial

countries are limited in that they refer to exports o f

nonmilitary merchandise, with sales o f services not

explicitly within the scope o f the indexes.

Part II. Export prices and export unit values

Export unit value indexes have been used extensively, though often uncritically, as approximations to

export price trends in most international trade studies.

H owever, there are significant differences between the

nature and performance o f these data and those o f

export price indexes. This section describes the tw o

measures and discusses some o f the differences and

limitations o f each.

Export price indexes, constructed according to the

specification approach, measure the export price trends

o f a sample o f items or products chosen to represent the

universe o f a country’s exports. The chosen items are

fully described by their physical and performance

characteristics (or specifications) as w ell as the conditions o f sale (or purchase) such as discounts, size of

transaction, credit terms, class o f buyer or seller, and so

forth. Export prices are then collected periodically for

items with the same specifications and conditions o f

sale. W henever changes occur in the specifications

(such as quality changes) or the terms o f transaction,

prices are adjusted accordingly. Thus, specification

export price indexes are designed to gauge pure price

changes in a sample o f products over time.

Export unit values for classes o f products are calculated from customs documents by dividing the accumulated value o f shipments in each class during a given

period (generally a month) by the respective accumulated quantities. Period-to-period unit value relatives for

each class then may be combined through any o f a

variety o f weighting procedures to form indexes for

larger aggregates o f products. A t the limit, when

categories are sufficiently detailed, specification prices

and unit values are the same. However, in practice this

limit is seldom, if ever, reached because a product

classification system with the level o f detail that would

be necessary to accomplish this would be too cumbersome for exporters to use. Export unit value indexes,

calculated following the methods described above, are

available for most o f the major countries o f the world

and are published in national statistical publications.

Also, they are reprinted in publications o f international

organizations.5

Since export price indexes and export unit value

indexes are based on a sample o f product groups or

transactions, they are both subject to sampling errors.

Export price indexes, by design, are constructed using

reports on a sample o f companies, products, and

transactions.6 Therefore, sampling errors may occur at

each o f the three levels o f sampling. Export unit value

indexes, although in theory are calculated using data

covering all transactions, in practice use a judgmental

sample since some transactions with erratic unit value

behavior are excluded, as are groups for which quantity

data are not available.7 (The quantity definition

problem does not arise in the construction of export

price indexes.) Another factor that introduces sampling

error is that, at least for the United States, export unit

value indexes do not cover exports to every country. In

addition to being affected by sampling errors, both

export price indexes and export unit value indexes are

affected by nonsampling errors (such as measurement

errors).

Evidence o f problems associated with the use of unit

values as measures o f price change appears in the

recent literature on econom ic measurement. In virtually all cases, investigators have concluded that unit

value indexes, as they currently exist, are poor measures o f price change because they are affected by

changes arising from the products themselves or from

the circumstances surrounding the transactions. They

have been found to be influenced by changes during

and between periods in the composition o f products in

each class, by both short-term and secular changes in

quality, by changes in shipment values due to changes

in the amount o f “service” provided to the buyer by the

seller, by contract-shipment lags, and by changes in the

circumstances o f transactions (credit terms, shipping

terms, packing, etc.) as well as by pure price changes.

Export price indexes, however, are designed in such a

w ay that adjustments can be made for these non-price

changes so that they do not becom e erroneously

incorporated into the indexes as price changes. While

conceptually, at least, export price indexes can be

considered to be measures o f pure price change,

changes in export unit value indexes reflect, in addition

5See, [11] world tables and country tables.

6Sampling and pricing procedures employed in the preparation of

export price indexes are similar to those followed in domestic

industrial price indexes. For a description of these procedures used in

constructing export price indexes in West Germany see [23]; for

Japanese methodology see [3]. Detailed specifications of products

included in the Japanese indexes are given (in Japanese) in [2]. For

the United States, [28] describes the methodology of the export price

indexes and discusses both the judgmental and probability sampling

procedures.

7This is illustrated by information shown in table 1 below.

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to pure price changes, changes in any, all, or a number

o f factors outlined above. A brief summ ary o f the

findings o f som e o f these studies follow s. Readers

already familiar w ith this literature m ay w ish to skip to

Part III.

A fter com paring price and unit value data in the

d evelopm en t o f deflators, the Subcom m ittee on Prices

o f the Interagency C om m ittee on M easurem ent o f R eal

O utput [10] recom m ended m ore extensive use o f specification price data, primarily because unit value m easures tended to be affected by changes in product mix.

A n em pirical study o f unit values w as undertaken by

the Bureau o f Labor Statistics (B L S) at the request o f

the Subcom m ittee. U sing 25 item s at disaggregated

levels the study sh ow s (p. 256) a “persistent tendency

o f unit values. . .to reflect shifts in product mix, usually

to the low er end o f the quality- or price line.” A nother

study by the Federal R eserve Board for the Subcom ­

m ittee suggests that (p. 256) “any gains in precision

w h ich m ay arise because unit values reflect a com preh ensive universe representing actual transaction prices

are offset by problem s o f product and transaction m ix.”

Several studies have investigated the perform ance o f

price indexes and export unit value indexes either by

constructing the tw o types o f indexes for the same

categories or by com paring existing m easures. K ravis

and L ipsey [14] com pared specification export price

indexes w ith export unit value indexes for the U nited

States constructed using similar w eigh ting schem es for

several export categories in SIT C 7 and the m etals

portion o f S IT C 6. Based on a com parison o f trends o f

the six tw o-d igit groups that encom passed the products

they studied for the period 1953-64, they con clud e (p.

189) that the unit values w ere “erratically related to the

international prices, rising m uch faster in 1953-1957,

d eclining sharply in som e cases in later years, and rising

rapidly at other tim es relative to the international

prices.” Similar results w ere obtained by M urphy [15]

in a study that com pared U .S. export price indexes and

export unit value indexes for seven four-digit export

categories and by H olm es [9] for a com parison o f the

Canadian Industrial Selling Price Indexes and unit

value indexes for 3,237 com m odity categories. T h e

sim ilarity o f the results o f all three studies conducted at

different levels o f aggregation reinforces the position

that trends in unit values are not good estim ators o f

price trends. In sum, as W . R ostin [23] o f the Federal

Statistical O ffice states, in reference to the foreign trade

price statistics o f the Federal R epublic o f Germ any,

. . .the indices o f foreign trade prices and the

respective unit value indices. . .take a different

course; at times, they even differ very str o n g ly .. .

T his should not com e as a surprise. . . .W hile in

the case o f a genuine price index, all changes

w h ich are not pure price m ovem ents are elim inated, changes in addition to pure price m ovem ents

enter into an average value index w ithout being

filtered or corrected (p. 10).

In spite o f the findings cited above, G ordon [7] states

that unit values are superior to specification prices as

applied in the capital good s portion o f the U .S.

W holesale Price Index (W PI). T h e reason for this, he

argues, is that though the W PI seeks to obtain transaction prices, list prices that do not sh ow actual

discounts are obtained for som e products and, therefore, W PI series for these products tend to sh ow less

price change than actually occurs. G ordon believes

these discounts are reflected in unit values.8 H ow ever,

Popkin and G illingham [22, p. 307] point out that

G ordon ’s analysis rests on the assum ption o f the

validity o f unit value indexes as measures o f transaction

prices, although there is little justification given by

G ordon to support its acceptance. In fact, exam ination

b y Popkin and G illingham o f the data used by G ordon

indicates severe product m ix problem s w h ich underm ine G ordon ’s conclusion that the unit values are

superior m easures o f transaction prices.9 In apparent

recognition of this criticism, Gordon in a later paper

[8] con clud es that “ the im portant function served by

unit value data is to pinpoint the areas w here further

research on transaction pricing is likely to have a high

benefit-cost ratio.” T his seem s to im ply acceptance o f

the recom m endation o f the Subcom m ittee on Prices

[10, p. 257] that price measures rather than unit values

be used unless there is positive evidence that price

m easures are unusuable.

T h e studies cited above have dealt either w ith

conceptual and m easurem ent differences b etw een

prices and unit values or w ith disparities in the

behavior o f price and unit value indexes for product

categories at different levels o f aggregation. N otw ith ­

standing these differences and their effects on price and

unit value indexes at disaggregated levels, there are at

least tw o additional factors that m ay be partially

responsible for disparities in the behavior o f published

aggregate export price indexes and export unit value

indexes as they currently exist.

(1) W here a country publishes both an export price

index and an export unit value index the sam ple o f

products included in the tw o measures is likely to be

different. Since detailed inform ation on the product

sam ple used by each o f the countries in the preparation

o f the tw o external price measures is not available, it

has not been possible either to determ ine the extent to

8For further background on the general problem of list prices, see

[25]. Their principal recommendation for dealing with this problem is

that greater reliance be placed on collecting prices from buyers. That

solution, one of several that could be proposed, is not practical in the

case of export price indexes.

9See also [26, p. 63 and note 33].

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w h ich differences in product sam ples affect the comparisons or to make any adjustm ents to elim inate this

source o f differences.

(2) In m ost cases, individual country export unit

value indexes are calculated by the Fisher formula,

w h ile export price indexes generally are constructed

using the Laspeyres formula. A gain, it has not been

feasible to gauge the effect o f this difference in the

aggregation form ula on the behavior o f the aggregate

indexes.

Som e investigators argue that the m ajor difference

b etw een price and unit value indexes, especially at

aggregate levels, is one o f lags, i.e., that changes in

prices sh ow up at a later date as changes in unit values;

hence, the argum ent runs, unit value changes reflect

price changes o f earlier periods. W hile there is a

m easure o f truth in this line o f reasoning, severe

problem s remain if price changes are to be inferred

from unit value changes as illustrated by the follow in g.

Since m onthly aggregate export price indexes as w ell

as export unit value indexes are available on ly for

Germany and Japan, lagged relationships between the

tw o price measures can be estim ated on ly for these tw o

countries. F or the period 1970 to 1975, the logs o f

m onthly export price changes for Japan and G erm any

distributed over periods o f up to 6 m onths w ere able to

explain 55 and 70 percent, respectively, o f the observed

variation in the log o f the change in their export unit

values for the current m onth. Interestingly, over the

period exam ined, the relation betw een changes in unit

values and changes in lagged export prices is statistically different b etw een the tw o countries and statistically

unstable w ithin each o f the countries. T he relatively

large am ount o f variation in unit value changes that

cannot be explained by changes in export price indexes,

together w ith relations that are different betw een and

unstable w ithin the tw o countries, make it quite risky to

infer changes in one index from changes in the other.

N or can export price behavior in other countries be

reasonably expected to conform to the unit value

relations o f either G erm any or Japan.

M oreover, an interesting logical question arises here.

In order to estim ate a relation b etw een export price

indexes and unit value indexes for a given country, both

series m ust be available. H ow ever, if both are available,

unless there is evid en ce to the contrary, analysts ought

to prefer to use the export price series rather than the

unit value series w h ich is a proxy for the price series.

In addition to the inadequacies o f unit values as

m easures o f price change discussed above, another, less

w id ely recognized problem tends to plague export unit

value indexes, nam ely, that the unit values o f m any

exported com m odities are not included in the published

unit value indexes. F or the U nited States, for exam ple,

the official export unit value indexes for 1973 w ere

calculated from unit values for categories accounting

for 42.2 percent o f the total value o f U .S. exports; the

rem aining 57.8 percent w as covered by imputation.

(S ee table 1.) C ategories are not included in the U .S.

unit value indexes, and h ence are covered by im putation, for either o f the follow in g reasons [32, p. 31]:

(1) Since export unit values are derived by dividing

an export dollar value by a com parable quantity figure

(pounds, tons, bushels, number o f units, etc.), they

Table 1. Coverage in 1973 of indexes of U.S. export unit values, by economic class

(in millions of dollars)

Economic class Percent

of total

All commodities Covered commodities Noncovered commodities

Total

value

Percent

of class

Value Percent

of class Value Percentof class

U.S. domestic exports, total1 .......................................... 100.0 69,707.2 100.0 29,379.1 42.2 40,328.1 57.8

Crude foods ............................................................................ 12.6 8,804.0 100.0 7,852.1 89.2 951.9 10.8

Manufactured foods ............................................................... 5.1 3,523.6 100.0 2,079.0 59.0 1,446.6 41.0

Crude materials....................................................................... 11.2 7,826.4 100.0 6,066.1 77.5 1,760.3 22.5

Semimanufactures................................................................... 13.3 9,249.4 100.0 3,706.5 40.1 5,542.9 59.9

Finished manufactures .......................................................... 57.8 40,303.8 100.0 9,675.4 24.0 30,628.4 76.0

1 Excludes military grant-aid. SOURCE: Foreign Trade Division, Bureau of the Census. See Index Numbers

of U.S. Exports and Imports. 1919 - 1971 (Bureau of the Census, 1972).

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cannot be calculated for those classes w here quantity

data are not available, e.g., com puters;

(2) E ven w here quantity data are available, categories consisting o f a m ixture o f unlike item s are often

excluded.

Ordinarily, im putation is a procedure used in scientific sam pling. H ow ever, in this instance it is clear that the

proportion o f products that m ust be covered by

im putation in the unit value indexes is the consequence

o f the peculiar nature o f unit values them selves, and is

n ot a result o f a scientific and replicable sam pling

procedure. H ence, there are unknow n biases in the

product sam ple covered b y the unit value indexes.

In this regard, it is interesting to note that there is a

strong inverse relation, b y m ajor econ om ic class,

b etw een the relative im portance o f each class o f

exports in the total value o f U .S. exports and the share

o f the value o f exports for w h ich unit values are

calculated in that class. F or exam ple, it can be seen in

table 1 that export unit values w ere calculated for

categories corresponding to 89.2 percent o f the value o f

exports o f crude foods w h ile crude foods accounted for

12.6 percent o f the value o f U .S. exports. Y et, export

unit values w ere calculated for categories covering

on ly 24.0 percent o f the value o f finished m anufactures,

though this category accounted for 57.8 percent o f the

value o f U .S. exports. G iven this inverse relationship, a

question exists as to w hether or not the unit value index

for U .S. exports to the w orld adequately reflects the

m ovem ent o f unit values o f all U .S. exports, a question

w h ich is quite apart from the problem o f w hether or

not the index o f unit values represents the m ovem ent o f

actual prices.

A s previously noted, price indexes are based on a

sam ple o f transactions for a sam ple o f products. Thus, it

is clear that m ost products are not included directly in

price indexes. Instead, their price m ovem ents are

covered by im putation from the price m ovem ents o f

the sam pled products. F or unit value indexes, w hether

or not a class o f products is included in an index

appears to depend on the classification system . E ven

w h en a class o f products is included, it is not possible to

adjust for changes in the com position and quality o f

products in each class or for changes in the terms o f

transactions.

Part III. Data

T h e basic data used here to estim ate alternative

m easures o f industrial countries’ export price trends to

O P E C are all taken from publicly available sources.

T h e data include:

(1) A ggregate export unit value indexes to the w orld

for each o f the 14 industrial countries;

(2) A ggregate export price indexes to the w orld for 2

o f the 14 countries and a specially constructed export

price index for the U nited States; and

(3) W eights for aggregating these indexes across

countries.

Currently, all 14 industrial countries publish aggregate export unit value indexes for all m erchandise

exports to the w orld. A dditionally, the Federal R epublic o f G erm any [24] and Japan [1] publish both export

price indexes for disaggregated product categories and

an aggregate m easure for their m erchandise exports.10

T h e N etherlands and the U nited States currently

publish export price indexes for selected export categories but do not produce an aggregate series because

coverage o f all exports on a sam ple basis is not yet

com plete. Since on ly the aggregate export price series

w ere used in this analysis, except for the U nited States,

data for the N etherlands w ere not included. E xport

price indexes for Canada and Sw eden, w h ich are based

on a com bination o f export prices and export unit

values, w ere not included either.

F or the U nited States, disaggregated export price

indexes are currently available [29] for a significant

num ber o f categories o f exports; these indexes have

been published by the B L S for the third m onth o f each

quarter since M arch 1974, ch iefly for the finished

m anufactured good s in S IT C 7, and selected categories

in S IT C 5, 6, and 8. In addition, export price data for

w heat, sorghum , co m , and soybeans are published

m onthly b y the U .S. D epartm ent o f A griculture (U SD A ) in [35].

A n estim ated index o f U .S. export prices to the

w orld w as constructed using the export price data from

B L S and U S D A , together w ith published dom estic

U .S. w holesale price series for m illed rice and beans

[30]. (N o te that although official price indexes have

been used here to construct an aggregate for the U nited

States, the aggregate itself is not an official price index.)

T h e export price series that w ere used covered, on a

sam ple basis, categories that accounted for 65.4 percent

and 73.7 percent o f U nited States exports to the w orld

and to O P E C , respectively, in 1973 (S ee table 2.) T h ese

figures include the sam pled values and also the im puted

values o f U .S. exports in categories in S IT C sections 7

and 0 w here the internal coverage w as very high. U .S.

export price trends for the categories o f products

w h ich w ere not covered by these price series w ere

approxim ated b y price index series for the appropriate

categories o f the U .S. W PI (published m onthly [30]),

after they w ere arranged according to the system used

for classifying and recording U .S. exports [33].11 Thus,

10Export price indexes are also published by other countries such as

Australia, Bulgaria, and Czechoslovakia. See [27].

nThe risks of using domestic price trends as proxies for export

price trends are well known and are described in detail in [12] and

[13]. See also [15].

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T a b le 2. U .S . e x p o r ts to th e w o r ld 1 a n d to O P E C 2 d u r in g 1973, b y S I T C s e c tio n

SITC

section

Description

U.S. exports

Value of U.S. exports to the world and to

OPEC covered by U.S. export prices to the world3

To world Percent To OPEC Percent To world Percent To OPEC Percent

Total ................................................................... $70,241,414,891 100.00 $ 3,334,973,423 100.00 (4 ) (4 ) (4 ) (4)

Total, SITC 0-8 ..................................................... 68,541,162,293 97.58 3,284,705,624 98.49 $45,912,926,561 65.36 $ 2,459,117,583 73.74

0 Food and live anim als................................................... 11,930,201,785 16.98 589,766,770 17.68 11,930,201,785 16.98 589,766,770 17.68

1 Beverages and tobacco ................................................ 1,008,149,385 1.44 49,329,433 1.48 0 0 0 0

2 Crude materials, inedible, excluding fuels ............ 8,380,210,878 11.93 122,532,361 3.67 2,762,207,817 3.93 8,237,940 0.25

3 Mineral fuels, lubricants, and related

materials .................................................................... 1,670,507,236 2.38 19,137,834 0.57 0 0 0 0

4 Oils and fats, animal and vegetable ....................... 683,948,562 0.97 53,065,094 1.59 0 0 0 0

5 Chemicals ................................................................... 5,749,508,582 8.19 243,446,386 7.30 1,155,853,604 1.65 34,369,833 1.03

6 Manufactured goods classified chiefly

by material .............................................................. 7,161,550,701 10.19 370,463,370 11.11 1,589,874,461 2.26 95,205,364 2.85

7 Machinery and transport equipment ..................... 27,864,580,137 39.67 1,698,676,502 50.94 27,864,580,137 39.67 1,698,676,502 50.94

8 Miscellaneous manufactured articles, nec ............ 4,092,505,027 5.83 138,287,874 4.15 610,208,757 0.87 32,861,174 0.99

9 Commodities and transactions not

classified according to kind. ......................... 1,700,252,598 2.42 50,267,799 1.51 - - - -

Value of U.S. exports to the world and to

OPEC for which WPI data were used

Total ..................................................................... (4 ) (4 ) (4 ) (4 )

Total, SITC 0-8 ......................................................... $ 22,628,235,732 31.22 $ 825,588,041 24.75

0 Food and live animals .................................................. 0 0 0 0

1 Beverages and tobacco ................................................ 1,008,149,385 1.44 49,329,433 1.48

2 Crude materials, inedible, excluding fuels ................... 5,618,003,061 8.00 114,294,421 3.42

3 Mineral fuels, lubricants, and related

materials ......................................................................... 1,670,507,236 2.38 19,137,834 0.57

4 Oils and fats, animal and vegetable ............................ 683,948,562 0.97 53,065,094 1.59

5 Chemicals ......................................................................... 4,593,654,978 6.54 209,076,553 6.27

6 Manufactured goods classified chiefly

by material ..................................................................... 5,571,676,240 7.93 275,258,006 8.25

7 Machinery and transport equipment ............................ 0 0 0 0

8 Miscellaneous manufactured articles, n e c ..................... 3,482,296,270 4.96 105,426,700 3.16

9 Commodities and transactions not

classified according to kind ......................................... - - - -

1 U.S. exports to the world include both military and nonmilitary sales. SOURCE: Calculated from data in U.S. Exports - Schedule B Commodity by Country,

2 U.S. exports to OPEC refer only to nonmilitary sales. Report FT - 410, December 1973 (Bureau of the Census, 1974).

3 On a sample basis.

4 Not applicable since SITC has been excluded.

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a price index w h ich is a com posite o f U .S. export prices

to the w orld and dom estic U .S. industrial prices w as

calculated using as w eigh ts the value o f U .S. exports to

all destinations in detailed categories in 1973. This

general aggregation procedure, described in detail in

[16], yields a standard Laspeyres index o f prices. It

should be noted, however, that there are two important differences b etw een the U .S . export price index to

O P E C estim ated in [16] and the index o f U .S. export

prices to the w orld estim ated here.

(1) T h e form er study used both published and

unpublished export price data from the B L S, w hile

here on ly published export price data h ave been

included so that others m ay reproduce the results.

(2) T h e estim ate prepared here uses as w eigh ts the

value o f U .S. exports to the w orld in detailed categories, w hile in the earlier study U .S. exports to O P E C

w ere used as value w eights.

Export unit value indexes for the industrial countries,

export price indexes for G erm any and Japan, and the

special export price m easure for the U nited States w ere

com bined into aggregate m easures (show n in tables 3

and 4) using w eigh ts corresponding to each o f the

industrial countries’ shares in the total dollar value o f

exports to O P E C in 1974 calculated from [19]. Trade

flow s from the industrial countries to tw o O P E C

m em bers, Qatar and G abon, w ere not included because

o f lack o f data.

Part IV. Industrial countries' price trends of

exports to OPEC: Some alternative calculations

T h e data described above on export unit value

indexes, export price indexes, and w eigh ts are used in

this section to obtain tw o estim ates o f the behavior o f

export prices from the industrial countries to O PE C .

B oth export unit value and price indexes for the

industrial countries are used to prepare estim ates o f

their export prices to O PE C . T h e m eth od ology fo llo w ­

ed, w h ich is to com bine individual country’s aggregate

export price trends into an aggregate m easure for all

industrial countries, adheres closely to that in other

studies in order to facilitate com parison am ong the

results. Estim ates o f trends o f prices received by O P E C

per barrel o f oil are also com pared w ith the different

extim ates o f industrial countries’ export price trends

prepared here.

T h e estim ates o f industrial countries’ export price

trends to O P E C carried out here are primarily in terms

o f dollars since oil is sold in w orld markets for dollars

and, therefore, the receipts o f the oil exporting cou n tries are in dollars. (Indexes in national currencies are

also sh ow n in the tables, for inform ation purposes

on ly.) It should be noted that changes in either export

prices or export unit values o f the industrial countries

expressed in dollar terms are influenced by changes in

the exchange rates o f each o f the industrial countries’

currencies vis-a-vis the dollar, as w ell as by each

country’s inflation rate as stated in its national currency. Thus, during times when the dollar has a general

tendency to depreciate against other currencies,

changes in export prices in dollar terms w ill exceed

price changes expressed in national currencies. This

appears to have been the case from the beginning o f

1973 through the second quarter o f 1975. H ow ever, as

the dollar appreciates in relation to other industrial

countries’ currencies, changes in export prices in dollar

term s w ill be sm aller than if they w ere m easured in

national currencies. T his latter situation appears to

have prevailed from 1975 III to 1976 II so that, despite

substantial dom estic inflation in som e industrial cou n tries during this period, the com m ensurate decline o f

their exchange rates m eant that the am ount o f dollars

necessary to purchase a set o f good s in those countries

did not change very m uch.

Export price trends: Estimates for Germany,

Japan, and the United States

T w o aggregate m easures o f export price changes for

G erm any, Japan, and the U nited States w ere calculated, one based on export prices and the other one on

export unit values, w eigh ted by each country’s share o f

exports to O P E C in 1974.12 T h e results are summ arized

in table 4.

C om parisons o f the tw o aggregate indexes sh ow

significant differences in their behavior.13 From 1970 II

to 1973 IV , period-to-period changes in the aggregate

export price index exceeded changes in the export unit

value index in four out o f five instances. Beginning w ith

1974 I and extending through 1975 IV , the opposite

pattern em erged: the quarter-to-quarter changes in the

export price index w ere substantially low er than

changes in the export unit value index in every

instance. D uring 1976, h ow ever, the export price index

sh ow ed a m uch larger increase than the unit value

index during the first quarter, w hile the export price

index sh ow ed sm aller increases than the export unit

12In 1974, Germany, Japan, and the United States accounted for

59.4 percent of the industrial countries’ exports of nonmilitary goods

to OPEC. For these three countries alone, the export shares for 1974

were: Germany, 25.4 percent; Japan, 32.9 percent; and the United

States, 41.7 percent. See [19].

13Data are presented here that use a wide choice of base periods for

comparisons such as the one given. The indexes calculated in this

paper for the period 1970-73 show changes between the second

quarters of successive years because only second-quarter data are

available for the United States for years prior to 1974. Index values

for the United States have been interpolated for 1973 III and 1973 IV

as described in footnote 3 of table 3.

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T ab le 3. E x p o rt p rice in d e x e s fo r G e rm a n y and Ja p a n , and s p e c ia lly c o n stru cte d U .S. p rice

in d e x to the w o rld , 1970-761

.(Indexes in dollar terms; 1970 annual average=100)2 

Year and quarter

1970

1971

1972

1973

1974

1975

1976

Germany Japan United States

99.7 ( 99.7) 100.1 (100.1) 100.0

104.9 (103.5) 101.5 (101.5) 103.9

121.1 (105.1) 114.2 ( 97.7) 105.5

149.3 (111.6) 139.5 (102.7) 125.5

172.2 (112.6) 145.6 (107.2) 129.03

165.8 (115.5) 153.2 (116.9) 148.23

168.3 (125.6) 163.6 (132.8) 149.6

191.1 (130.7) 179.6 (139.2) 148.6

188.0 (134.1) 182.3 (149.2) 158.2

196.1 (135.1) 178.3 (148,6) 164.2

212.8 (135.9) 172.6 (140.6) 159.2

211.7 (136.2) 169.8 (137.9) 157.6

195.7 (136.5) 165.6 (137.1) 163.9

193.4 (137.2) 163.8 (138.1) 161.9

199.2 (140.1) 165.8 (139.3) 166.2

203.0 (141.9) 169.4 (140.8) 167.4

206.5 (142.8) 173.8 (140.5) 163.5

1 For Germany and Japan, unweighted average of monthly values. For the 

United States, estimate for the last month of each quarter, unless otherwise 

noted.

2 For the U.S. measure, June 1970=100.

3 Interpolated using estimates for 1973 II and 1974 I and changes in U.S. 

wholesale prices for all categories for June-September 1973 and December 

1973-March 1974. See Wholesale Price Indexes. Supplement 1974. (Bureau 

of Labor Statistics, 1975).

SOURCES:

Germany and Japan — Data in national currencies from International 

Financial Statistics (International Monetary Fund, August 1976 and more recent

issues). Data in dollar terms calculated from export price data in national 

currencies and exchange rates in same. Export price indexes are weighted 

internally using value of exports to the world.

United States — Export price measure for the United States uses export 

price data published by the Bureau of Labor Statistics and the U.S. Department 

of Agriculture and domestic prices for some categories, weighted using the value 

of U.S. exports to the world in 1973. For methodology and important assumptions in the construction of the measure see Edward E. Murphy and Jorge F. PerezLopez, "U.S. Export Prices and OPEC Oil Prices," Monthly Labor Review, November 1975, table 7 and part 111 of this paper.

NOTE: Figures in parentheses are indexes in national currencies.

Table 4. Aggregate measures of export price trends for Germany, Japan and the United States w eighted by each

country's share of exports to O P E C in 1974, selected quarters and period-to-period percent changes, 1970-76

(Indexes in dollar terms; 1974 1=100)

Year and quarter

Export unit value indexes Export price indexes

Index Percent change Index Percent change

1970 II .. 64.5 ( 74.6) - - 63.0 ( 72.8) - _

1971 II .. 66.7 ( 76.9) 3.4 ( 3.1) 65.2 ( 75.0) 3.5 ( 3.0)

1972 II . . 72.0 ( 76.4) 8.0 (-0.7) 70.7 ( 74.9) 8.4 (-0.1)

1973 II . . 83.9 ( 81.5) 16.5 ( 6.7) 85.6 ( 83.0) 21.1 (10.8)

Ill . . 92.0 ( 86.0) 9.7 ( 5.5) 91.2 ( 85.3) 6.5 ( 2.8)

IV .. 94.7 ( 91.1) 2.9 ( 5.9) 97.1 ( 93.6) 6.5 ( 9.7)

1974 I .. 100.0 (100.0) 5.6 ( 9.8) 100.0 (100.0) 3.0 ( 6.8)

II . . 108.9 (104.8) 8.9 ( 4.8) 106.4 (102.3) 6.4 ( 2.3)

Ill . . 112.3 (111.3) 3.1 ( 6.2) 109.1 (108.2) 2.5 ( 5.8)

IV . . 117.2 (115.8) 4.4 ( 4.0) 111.2 (109.9) 1.9 ( 1.6)

1975 I . . 122.6 (117.9) 4.6 ( 1.8) 111.2 (106.7) 0.0 (-2.9)

II . . 121.0 (116.3) -1.3 H .4 ) 110.0 (105.6) -1.1 (-1.0)

Ill .. 116.3 (114.9) -3 .9 (-1.2) 108.5 (107.3) -1 .4 ( 1.6)

IV . . 114.2 (114.0) -1.8 (-0.8) 107.3 (107.1) -1.1 (-0.2)

1976 I 115.2 (114.5) 0.9 ( 0.4) 109.7 (109.2) 2.2 ( 2.0)

II 117.1 (116.0) 1.7 ( 1.3) 111.4 (110.2) 1.6 ( 0.9)

III . 120.5 (118.0) 2.9 ( 1.7) 111.7 (109.3) 0.3 (-0.8)

NOTE: Figures in parentheses refer to aggregate measures calculated from country indexes SOURCES: Export unit value indexes - International Financial Statistics (International Monein national currencies. tary Fund, August 1976 and more recent issues).

Export price indexes - Table 3.

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value index for the second and third quarters. On

balance, over the entire period 1970 II to 1976 III, the

increase o f export prices w as about one-half that o f

export unit values.

Since com parisons o f rates o f change often are

sensitive to the ch oice o f base period, tw o tables w ere

prepared to sh ow all the possible com binations o f

period-to-period changes. T o facilitate com parison o f

the tw o m easures, table 5 sh ow s the percent changes o f

the aggregate export unit value index for G erm any,

Japan, and the U nited States b etw een any tw o periods,

w h ile table 6 refers to the corresponding changes in the

aggregate export price index. F or exam ple, for the

period 1974 I to 1975 I, the export unit value index o f

the three countries increased by 22.6 percent, w hile the

export price index increased by 11.2 percent. Between

1975 III and 1976 III the export price index rose by 2.9

percent, while the export unit value index rose by 3.6

percent. From 1974 I to 1976 III the increase of export

unit values was 20.5 percent compared with an 11.7 percent

increase of export prices. Thus, increases in the three

countries’ export prices to OPEC for some periods are substantially larger, in some cases about twice as large, when an

export unit value index is used than when an export price

index is employed.

Export price trends: Estimates for all industrial

countries

O ther investigators w h o have attem pted to assess the

export price perform ance o f the 14 industrial countries

(e .g .,[2 1 ], [5]> have relied entirely on these countries’

export unit value indexes. H ow ever, in addition to

arguing that unit value indexes have serious lim itations

as m easures o f price change, it w as show n in the

preceding section that the unit value indexes for

G erm any, Japan, and the U nited States have generally,

though not alw ays, increased m ore rapidly than their

corresponding export price indexes. Since these 3

countries account for 59 percent o f industrial countries’

exports to O PE C , it is clear that the ch oice o f unit

value indexes to m easure their export price perform ­

ance w ill have a significant effect on a measure for the

14 industrial countries as a w hole. A n indication o f this

effect can be sh ow n by substituting the export price

indexes o f the 3 countries for their export unit value

indexes in a calculation that uses unit value indexes for

the rem aining 11 countries. (See table 7.)

In table 7, colum n 2 it m ay be seen that from 1974 I

to 1975 I, roughly the period covered by the other

studies, the export price inflation o f the 14 industrial

countries w as 26.7 percent w hen m easured by unit

values alon e.14 T his figure is reduced to 20.0 percent (in

colum n 1) w hen export price indexes are substituted for

the unit value indexes for G erm any, Japan, and the

U nited States. F or the period 1974 I to 1975 III, the

period o f the first oil price freeze, the unit value index

increased by 20.7 percent and the index using a

com bination o f prices and unit values increased by 16.1

percent. Beginning w ith the second oil price freeze

effective on O ctober 1, 1975, the unit value index

increased by 3.1 percent w hile the index using both

prices and unit values increased by 2.4 percent.15

In conclusion, the different alternative estim ates

presented above indicate that there has been inflation in

the prices o f exports from the industrial countries to

O P E C during the period exam ined. H ow ever, the

m agnitude o f this estim ated increase w as sh ow n to be

influenced by the ch oice o f data used. Industrial

countries’ export price trends to O P E C estim ated by

using export unit value indexes for each country tended

to indicate higher price changes than w hen a com bination o f export unit value indexes and export price

indexes (w here available) w as used. This occurred

because o f the significant differences in the trends o f

the export unit value indexes for G erm any, Japan, and

the United States compared with those of the export price

indexes.

Comparison of industrial countries’ merchandise

export price trends with oil price trends

A t the sam e tim e that industrial countries’ export

prices w ere rising, the price received by O P E C for

each barrel o f oil exported also underw ent changes.

O P E C countries’ oil export prices traditionally have

been keyed to the price o f Saudi Arabian light crude,

34 degrees A P I, f.o.b. Ras Tanura, w hich is often

referred to as the marker or benchm ark crude. Thus,

trends in the price o f the marker crude, calculated

follow in g [16], are used here to indicate price trends for

all O P E C countries. (Price received per barrel rather

than posted prices have been used since posted prices

are not transaction prices but rather accounting values

on w hich the oil exporting countries lev y revenueproducing taxes and royalties.)

F o llo w in g the large increases o f posted prices for

crude oil in late 1973 and early 1974 (the increase

effected in early 1974 w as m ade retroactive to January

1, 1974), the posted prices w ere “frozen” at the n ew

14Using preliminary export unit value data, [21] and [5] found

increases of 22-5 percent and 23.1 percent, respectively, over this

period; the 26.7-percent figure above uses later revised export unit

values for each of the countries published in [11] aggregated in a

manner consistent with the two studies.

15The second oil price freeze period is approximated here by the

period 1975 III to 1976 III. Export unit value data for 1976 III were

not available for France and Norway at the time of the preparation of

this study. PIRINC, in a later study [20], forecasted a 2.7-percent

increase in industrial countries’ export prices (actually unit values) to

OPEC from 1975 III to 1976 III.

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Table 5. Percent changes in aggregate measure of export prices for Germany, Japan, and the United States

weighted by trade with OPEC, as measured by export unit value indexes, 1970-76

Year and quarter, to 19-

Year and quarter, from 19—

71

II

72

II

73

II

73

III

73

IV

74

1

74

II

74

III

74

IV

75

1

75

II

75

III

75

IV

76

I

76

II

76

III

70 II ................................................................... 3.4 1 1 . 6 30.1 42.6 46.8 55.0 6 8 .8 74.1 81.7 90.1 87.6 80.3 77.1 78.6 81.6 8 6 .8

71 II ................................................................... 8 .0 25.8 37.9 42.0 49.9 63.3 68.4 75.7 83.8 81.4 74.4 71.2 72.7 75.6 80.7

72 II ................................................................... 16.5 27.8 31.5 38.9 51.3 56.0 62.8 70.3 6 8 .1 61.5 58.6 60.0 62.6 67.4

73 II ................................................................... 9.7 12.9 19.2 29.8 33.9 39.7 46.2 44.2 38.6 36.1 37.3 39.6 43.6

73 III ................................................................... 2.9 8.7 18.4 2 2 .1 27.4 33.3 31.5 26.4 24.1 25.2 27.3 31.0

73 IV ................................................................... 5.6 15.0 18.6 23.8 29.5 27.8 2 2 .8 2 0 .6 2 1 .6 23.7 27.2

74 I ................................................................... 8.9 12.3 17.2 2 2 .6 2 1 .0 16.3 14.2 15.2 17.1 20.5

74 II ................................................................... 3.1 7.6 1 2 .6 1 1 .1 6 .8 4.9 5.6 7.5 10.7

74 III ................................................................... 4.4 9.2 7.8 3.6 1.7 2 .6 4.3 7.3

74 IV ................................................................... 4.6 3.2 -0.8 -2.6 -1.7 -0.1 2 .8

75 | ................................................................... -1.3 -5.1 -6.9 -6.0 —4.5 -1.7

75 II ................................................................... -3.9 -5.6 -4.8 -3.2 -0.4

75 III ................................................................... -1.8 -0.9 0.7 3.6

75 IV ................................................................... 0.9 2.5 5.5

76 I ................................................................... 1.7 4.6

76 II ................................................................... 2.9

SO U R C E : Calculated from table 4.

Table 6. Percent changes in aggregate measure of export prices for Germany, Japan, and the United States

weighted by trade with OPEC, as measured by export price indexes, 1970-76

Year and quarter, to 19-

Year and quarter, from 19— 71

II

72

II

73

II

73

III

73

IV

74

1

74

II

74

III

74

IV

75

1

75

II

75

III

75

IV

76

1

76

II

76

III

70 II ................................................................ 3.5 1 2 .2 35.9 44.8 54.1 58.7 68.9 73.2 76.5 76.5 74.6 72.2 70.3 74.1 76.8 77.3

71 II ................................................................ 8.4 31.3 39.9 48.9 53.4 63.2 67.3 70.6 70.6 68.7 66.4 64.6 68.3 70.9 71.3

72 II ................................................................ 2 1 . 1 29.0 37.3 41.4 50.5 54.3 57.3 57.3 55.6 53.5 51.8 55.2 57.6 58.0

73 II ................................................................. 6.5 13.4 16.8 24.3 27.5 29.9 29.9 28.5 26.8 25.4 28.2 30.1 30.5

73 III ................................................................ 6.5 9.7 16.7 19.6 21.9 21.9 2 0 .6 19.0 17.7 20.3 2 2 .2 22.5

73 IV ................................................................ 3.0 9.6 12.4 14.5 14.5 13.3 11.7 10.5 13.0 14.7 15.0

74 I ................................................................ 6.4 9.1 1 1 .2 1 1 .2 1 0 .0 8.5 7.3 9.7 11.4 11.7

74 II ................................................................ 2.5 4.5 4.5 3.4 2 .0 0.9 3.1 4.7 5.0

74 III ................................................................. 1.9 1.9 0 .8 -0.6 -1.7 0 .6 2 .1 2.4

74 IV ................................................................ 0 .0 -1.1 -2.4 -3.5 -1.4 0 .2 0.4

75 I ................................................................ -1.1 -2.4 -3.5 -1.4 0 .2 0.4

75 II ................................................................ -1.4 -2.5 -0.3 1.3 1.5

75 III ................................................................ -1.1 1 .1 2.7 2.9

75 IV ................................................................ 2 .2 3.8 4.1

76 I ................................................................ 1 .6 1 .8

76 II ................................................................ 0.3

SO U R C E: Calculated from table 4.

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Table 7. Aggregate measures of export price trends for 14 industrial countries weighted by

each country's share of exports to OPEC in 1974, for the years 1970-76

(Indexes in dollar terms; 1974 - 1=100)

Year and quarter

1970

1971

1972

1973

1974

1975

1976

I

V

I

V

I

V

III

Aggregate-measures for 14 industrial countries as measured by:

Export price indexes for Germany and

Japan, special measure fo r the

United States, and unit values for the

remaining 11 industrial countries

Export unit value indexes

64.0 ( 72.0) 64.5 ( 72.6)

66.7 ( 74.6) 67.6 ( 75.4)

72.5 ( 75.2) 73.5 ( 76.1)

87.3 ( 83.0) 86.3 ( 82.1)

93.7 ( 85.9) 94.2 ( 86.3)

97.4 ( 92.4) 95.9 ( 90.9)

10 0 .0 (100.0) 10 0 .0 (100.0)

109.0 (104.9) 110.5 (106.3)

112.7 (110.7) 114.5 (112.5)

115.9 (113.1) 119.4 (116.6)

1 2 0 .0 (112.3) 126.7 (118.9)

119.7 (111.6) 126.2 (117.9)

116.1 (113.6) 120.7 (118.1)

115.1 (114.3) 119.3 (118.5)

116.5 (117.2) 119.8 (120.4)

117.2 (120.7) 1 2 0 .6 (124.1)

118.9 (121.7) 124.4 (126.5)

N O TE: Figures in parentheses refer to aggregate measures in national SO U R C ES: Export unit values — International Financial Statistics 

currencies of each country. (International Monetary Fund, August 1976, and more recent issues).

Export price indexes — Table 3.

January 1, 1974, levels until the end o f September 1975.

On October 1, 1975, a 10-percent increase in posted

prices was implemented and prices were again “frozen,” until late 1976. Apparently, some o f the price

differentials were revised in order to bring into line

some o f the higher priced crudes, but the price freeze

that began October 1, 1975, was still in effect at the

time o f this writing. It is interesting to note, however,

that although posted price levels remained unchanged

during the first price freeze (January 1974 to September

1975), price received by Saudi Arabia for exports o f

light crude rose by 9.6 percent as a result o f adjustments to the tax and royalty rates effected during late

1974 and early 1975. (See [16, pp. 40-41].) To illustrate,

percent changes in price received for specific time

periods are shown in table 8.

During a time (1974 I to 1975 III) that approximates

the period o f the first oil price freeze, the increase in

the export prices o f merchandise from Germany, Japan,

and the United States to OPEC was estimated at 8.5

percent using export prices, and at 16.3 percent using

unit values. For all 14 industrial countries together, the

increase was 16.1 percent using a combination o f export

prices for Germany, Japan, and the United States, and

export unit values for the remaining 11 countries, and

20.7 percent based on the export unit values for all 14

countries. These estimates compare with the 9.6-

percent estimated increase o f O PEC’s price o f crude oil

during this period.

For the more recent period (1975 III to 1976 III) that

covers about the same time as the second oil price

freeze, the increase o f export prices o f Germany, Japan,

and the United States was estimated at 2.9 percent

using export prices and at 3.6 percent using unit values,

based on the most current data available. For the 14

industrial countries, the increase in export prices to

OPEC during this same period was estimated at 2.4

percent using export prices for Germany, Japan, and

the United States and unit values for the remaining 11

countries, and 3.1 percent based on the export unit

values for all 14 countries. OPEC price per barrel

increased by an estimated 10 percent at the beginning

o f this period. (This 10-percent increase in the price per

barrel series probably overstates the increase for all

exported O PEC crude oil since some downward

adjustments took place in the posted prices o f several

types o f crude oil.)

For the entire period that follows the large oil price

increases, i.e., from 1974 I to 1976 III, estimates o f the

increase o f export prices from Germany, Japan, and the

United States to OPEC were 11.7 percent using export

prices or 20.5 percent using unit values. Estimates for

the 14 countries together were 18.9 percent using

export prices for Germany, Japan, and the United

States and unit values for the remaining 11 countries,

and 24.4 percent based on the export unit values for all

14 countries. During this period, OPEC price per

barrel rose by an estimated 20.6 percent.

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Table 8. Comparison of percent changes in alternative estimates of industrial countries'

export prices to OPEC and in estimates of OPEC's oil price per barrel

(Percent changes calculated from indexes in dollar terms)

Germany, Japan, and the 

United States using—

14 countries using—

Period Export prices

Export unit 

values

Export price 

indexes for 

Germany and 

Japan, special 

measure for the

Export unit 

values

Estimates for 

O PEC price per 

barrel

United States, 

and unit values 

for the remaining 

industrial

countries

1974 1 to 1975 III1 ............................................................ 8.5 16.3 16.1 20.7 9.6

1975 III to 1976 III2 .......................................................... 2.9 3.6 2.4 3.1 10 .0

1974 I to 1976 III3 .......................................................... 11.7 20.5 18.9 24.4 2 0 .6

1970 II to 1976 III ......................................................... 77.3 8 6 .8 85.8 92.9 1,033.1

1 Time period chosen to approximate time span of the first O PEC 

oil price freeze.

2 Time period chosen to approximate time span from beginning of 

the second O PEC oil price freeze to most current time.

3 Time period chsoen to approximate time span from beginning of 

the first O PEC oil price freeze to most current time.

Over a longer period, from before the large oil price

increases to the most current period (1970 II to 1976

III), the price received by OPEC per barrel o f oil was

estimated to have increased by 1,033.1 percent while

estimates o f export prices o f Germany, Japan, and the

United States rose by 77.3 percent using export price

indexes and 86.8 percent using export unit value

indexes. The corresponding figures for the 14 industrial

countries were 92.9 percent using export unit values for

all countries and 85.8 percent using a combination o f

export unit value indexes and export price indexes

where available.

Part V. Summary

Estimation o f the trend o f OPEC import prices is

made difficult by the absence o f import price indexes

for goods and services for the individual members of

OPEC. Until this situation is remedied, the analysis o f

the trend o f OPEC import prices will need to rely upon

export price information o f the countries that are the

suppliers o f goods and services to OPEC. Additional

data problems arise because none o f the industrial

countries publishes export price data for exports o f

services or o f military goods. The only price data on

industrial countries’ exports currently available refer to

export prices o f merchandise sold to all destinations.

The use o f industrial countries’ merchandise export

price trends to the world to estimate trends o f OPEC

import prices from those countries is based on tw o

assumptions:

(1) that each country’s export price trend for merchandise shipments to the world is a suitable proxy for

its merchandise shipments to OPEC, and

SO U R C ES: Germany, Japan, and the United States — Table 5 and 6.

All industrial countries — calculated from Table 7.

O PEC revenue per barrel — calculated using data in 

Murphy and Perez-Lopez, "U .S. Export Prices and 

O PEC Oil Prices," table 7, and more recent data.

(2) that trends o f freight, insurance, and other

charges associated with transporting and delivering

products from an exporting to an importing country

behave in the same manner as the export prices o f those

products.

These assumptions have not been tasted here. However, some unsystematic evidence was noted regarding

the latter assumption which suggests that freight and

other costs associated with the movement o f products

to some OPEC countries increased significantly during

1974 and 1975, partly as a result o f congestion o f port

facilities at points o f importation, and thus, may have

behaved differently from product price trends, at least

in those years.

Considerable data exist that may be used to estimate

the merchandise export price trends o f the principal

industrial countries. These data are o f tw o types: export

unit value indexes and export price indexes. There are

several studies that have shown theoretically and

empirically that unit value indexes are inferior to price

indexes as measures o f price change.

A comparison o f aggregate indexes o f export unit

values with indexes o f export prices for Germany,

Japan, and the United States has shown that there are

substantial differences in the behavior o f the tw o series

during the period covered, and that the choice o f proxy

variable for measuring export price trends has an

important bearing on the estimate o f O PEC’s imported

inflation. Within the stated limitations o f the measures,

it has been estimated here that export prices o f merchandise from Germany, Japan, and the United States,

which account for 59 percent o f industrial countries’

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merchandise shipments to OPEC, increased by 77.3

percent from the second quarter of 1970 to the third

quarter o f 1976 and by 11.7 percent from first quarter

1974 to third quarter 1976. A measure o f export prices

for Germany, Japan, and the United States and export

unit values for the other 11 industrial countries increased by 85.8 percent and 18.9 percent for the same tw o

periods, respectively. In contrast, the price received by

O PEC per barrel o f oil is estimated to have increased

by 1033.1 percent from second quarter 1970 to third

quarter 1976, and by 20.6 percent from first quarter

1974 to third quarter 1976.

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Bibliographic References

1. Bank o f Japan, Statistics Department. Export and Import Price Indexes M onthly. Tokyo, monthly.

2 . ----- , ------. Price Indexes Annual. Tokyo: Bank o f Japan, 1975.

3 . ----- , ------. Price Indexes Annual (Related Materials). Tokyo: Bank o f Japan, 1974.

4. Econom ic Research Institute for the Middle East. Imported Inflation in the M iddle East and OPEC Nations (in

Japanese). Tokyo, mimeographed, January 24, 1975. English translation published as a supplement to

M iddle East Economic Survey, Vol. 18, no. 18 (February 21, 1975).

5 . -------. Imported Inflation in the M iddle East and OPEC Nations Calculated in US. Dollars. Tokyo,

mimeographed, September 1975.

6. Goldsand, Alan. “Air Freight to Iran Booming,” The Journal o f Commerce, August 4, 1975, p. 3.

7. Gordon, Robert J. “Measurement Bias in Price Indexes for Capital G oods,” Review o f Income and Wealthy

Series 17, no. 2, June 1971, pp. 121-74.

8 . ---- . “The Use o f Unit Values to Measure Deviations o f Transaction Prices from List Prices,” Review o f

Income and Wealth, Series 19, no. 2, June 1973, pp. 267-69.

9. Holmes, R. A. “The Inadequacy o f Unit Value Indexes as Proxies for Canadian Industrial Selling Prices,”

Review o f Income and Wealth, Series 19, no. 3, September 1973, pp. 271-77.

10. Interagency Committee on Measurement o f Real Output, Subcommittee on Prices. Report on Criteria for

Choice o f Unit Values or Wholesale Prices in Deflators (The Searle Committee Report). Mimeographed,

June 17, 1960. Reprinted with changes andia brief summary o f the appendixes in Review o f Income and

Wealth, Series 19, no. 3, September 1973, pp. 253-66.

11. International Monetary Fund. International Financial Statistics, V ol. 29, no. 8, August 1976 and more recent

issues.

12. Kravis, Irving, and Robert E. Lipsey. “Export Prices and the Transmission o f Inflation "American Economic

Review, Vol. 67, no. 1 (February 1977), pp. 155-63.

1 3 . ----. “International Trade Prices and Price Proxies,” in Nancy E. Ruggles, et. al. The Role o f the Computer in

Economic and Social Research in Latin America. N ew York: National Bureau o f Econom ic Research,

1974.

14. ----- . Price Competitiveness in World Trade. N ew York: National Bureau o f Econom ic Research, 1971.

15. Murphy, Edward E. “A Comparison o f the Bureau o f Labor Statistics’ Indexes o f Export Prices for Selected

U.S. Products with Unit Value and W holesale Price Indexes.” Proceedings, Business and Economics

Statistics Section, American Statistical Association (1971), pp. 462-67.

16. Murphy, Edward E., and Jorge F. Perez-Lopez. “U.S. Export Prices and OPEC Oil Prices,” Monthly Labor

Review, Vol. 98, no. 11, Novem ber 1975, pp. 36-43.

17. The New York Times, June 5, 1975, p. 23.

15

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18. “Nigeria Econom y Called Impaired,” The New York Times, October 19, 1975, p. 12.

19. Organization for Econom ic Cooperation and Developm ent. Statistics o f Foreign Trade, Series A, June 1975.

20. Petroleum Industry Research Foundation, Inc. OPEC's Import Costs and Crude Oil Price Increases. N ew

York, mimeographed, October 26, 1976.

2 1 . ----. World Price Increases and the Inflation in OPEC's Import Costs. N ew York, mimeographed, August 27,

1975.

22. Popkin, Joel, and Robert Gillingham. “Comments on ’Recent Developm ents in the Measurement o f Price

Indexes for Fixed Capital G oods,”’ Review o f Income and Wealthy Series 17, no. 3, September 1971, pp.

307-9.

23. Rostin, W. Indices o f Foreign Trade Prices, Base 1970, Studies in Statistics, no. 30. Weisbaden: Federal

Statistical Office, 1974.

24. Statistisches Bundesamt. Preise und Preisindizes fu r Aussenhandelsguter. Weisbaden, monthly.

25. Stigler, George, and James K. Kindahl. The Behavior o f Industrial Prices. N ew York: National Bureau o f

Econom ic Research, 1970.

26. Triplett, Jack E. “The Measurement o f Inflation: A Survey o f Research on the A ccuracy o f Price Indexes,” in

Paul H. Earl (editor), The Analysis o f Inflation. Lexington: D.C. Heath and Co., 1976.

27. United Nations. National Practices in Compiling Price and Quantity Index Numbers. N ew York: United

Nations, 1975.

28. U.S. Department o f Labor, Bureau o f Labor Statistics. “International Price Indexes,” Chapter 17 in U.S.

Department o f Labor, Bureau o f Labor Statistics. Handbook o f Methods fo r Surveys and Studies, Bulletin

1910, 1976.

2 9 . ---- , ------ . “U.S. Export and Import Price Indexes, Third Quarter 1976,” N ew s Release U S D L 76-1369,

Novem ber 3, 1976.

3 0 . ----, ----------. Wholesale Prices and Price Indexes. Monthly.

3 1 . ----, ----------. Wholesale Prices and Price Indexes, Supplement 1974. 1975.

32. U.S. Department o f Commerce, Bureau o f the Census. Index Numbers o f U.S. Exports and Imports 1919-1971.

1972.

3 3 . ----, ----------. Schedule B: Statistical Classification o f Domestic and Foreign Commodities Exported from the United

States. January 1, 1971 edition and annual revisions.

3 4 . ---, -------. U.S. Exports-Schedule B Commodity by Country, Report FT-410, Decem ber 1973, 1974.

35. U.S. Department o f Agriculture. Foreign Agricultural Trade o f the United States. Monthly.

36. U.S. Department o f the Treasury, Office o f Middle East Affairs. The Absorptive Capacity o f the OPEC

Countries. Mimeographed, September 5, 1975.

37. The Washington Posty June 5, 1975, p. A20.

☆ U . S . GOVERNMENT P R IN T IN G O F F IC E : 1977-241-016/61

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