metadata: authors: 0: author: Yeats,Alexander James
docna: 0: docna: How conflicting definitions of
            "manufactures" distort output and trade statistics
docty: Policy Research Working Paper
subtopic: Construction Industry,Oil Refining & Gas Industry,Common Carriers Industry,Food & Beverage Industry,General Manufacturing,Pulp & Paper Industry,Plastics & Rubber Industry,Nonmetallic Mineral Product Manufacturing,International Trade and Trade Rules,Trade and Services,Business Cycles and Stabilization Policies
teratopic: Water Resources
abstracts: cdata!: This paper argues that the definition of
            "manufactures" used in compiling production data
            for industrial and developing countries is far broader than
            the definition used for trade statistics. This limits the
            analytical utility of output and trade data for studies
            using, say, apparent consumption or import penetration
            ratios. International agencies also use different
            definitions of manufactures when compiling trade statistics.
            For some countries, these definitional changes produce major
            differences in the value and share of manufactures exports
            and imports. The author assesses the analytical implications
            of six different definitions by comparing results when each
            is used to tabulate exports of the "manufactures"
            of 72 developing countries. Sensitivity tests show that five
            or six products - especially refined petroleum and some
            processed food products - are responsible for the main
            discrepancies. These items are included in the UNIDO (trade)
            and most agencies' output definitions but are excluded
            from the trade definition used by UNCTAD, GATT, and the
            World Bank. Clearly, international organizations must
            resolve these inconsistencies in definitions of output and
            trade statistics.
repnme: repnme: How conflicting definitions of
            "manufactures" distort output and trade statistics
display_title: How conflicting definitions of
            "manufactures" distort output and trade statistics
listing_relative_url: /research/1991/09/699872/conflicting-definitions-manufactures-distort-output-trade-statistics
topicv3: Manufacturing Sectors m1326521 1281,Nonmetallic Mineral Mining and Quarrying
            m1326877 1700,Trade m1326924 698,Trade in Services m1326928 780,Petroleum Industry m1583790 4710
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Water Resources
origu: International Economics Department
no_of_pages: 27
author_keys: 0: author_key: 93582
model_extractions: **Plc,Research, and External Affairs**

<!-- Start of picture text --> Internallonal Trade<br><!-- End of picture text --> WPS 760 This paper- a product of the International Trade Di sision, International Economics Department- is part of a larger effort in PRE to improve the quality and consistency of statistics needed to analyze developing countries' trade performance, industrialization, andgrowth. Copies are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Jean Jacobson, room S7-037,extension 33710 (21 pages).

Economists often stress the importance of increasing the production and exports of manufactures in developing countries, but national and international agencies are inconsistent about how they define "manufactures." The definition of "manufactures" used in compiling production data for industrial and developing countries is far broader than the definition used for trade statistics. This limits the analytical utility of output and trade data for studies using, say, apparent consumption or impon penetration ratios.

International agencies also use different definitions of manufactures when compiling trade statistics. For some countries, these definitional changes produce major differences in the value and share of manufactures exports and imports.

Yeats assesses the analytical implications of six different definitions by comparing results when each is used to tabulate exporLs of the "manufactures" of 72 developing countries.

He shows that the different cefinitions produce a discrepancy of $60 billion in estimates of developing country exports.

Sensitivity tests show that five or six products - especially refined petroleum (SITC 332) - and some processed food products are responsible for the main discrepancies. These items are includ. 'in the UNIDO (trade) and most agencies' output definitions but are excluded from the trade definition used by UNCTAD, GATT, and the World Bank.

Clearly, international organizations must resolve these inconsistencies in definitions of output and trade statistics.

The PRE Working Paper Series disseminates the findings of work under way in the Bank's Policy, Research, and Extemal AffairsComplex. An objective of the series is to get these findings out quickly, even if presentations are less than fully polished. The findings, interpretations, and conclusions in these papers do not necessarily represent official Bank policy.

Produced by the PRE Dissemination Center
# How Conflicting Definitions of "Manufactures" Distort Output and Trade Statistics

by Alexander J. Yeats

# Table of Contents

|I.|Introduction ........|1|
|---|---|---|
|H.|Conceptual Issues<br>.3||
|m.|Alternative Definitions of Manufactured Goods.|6|
|IV.|The Influence on Country Classifications .14||
|V.|Sunmmay and Conclusions .18||
||References .20||
Conceptual and Empirical Problems Relating to the Definition of Manufactures and Their Implications for Research and Trade Policy Analysis

## Alexander J. Yeats*

# I. I utidwn

For variour reasons many economists advocate the adoption of policy measures to increase developing countries production and export of manufactures. One reason for promoting manufactures is that some believe the price prospects for developing countries' traditional commodity exports are unfa"orable and will decline against other goods. In addition, commodity markets are often considerably more unstable than those for manufactures with the result that wide year-to-year fluctuations in the former's prices and export revenues place an added burden on economic management.' Manufactures, on the other hand, are generally thought to have positive characteristics that would assist countries to achieve their industrialization and development objectives. These include economy wide linkages, important learning effects due to the mastery of new production techniques, a means of absorbing surplus labor, relative price stability, and the expansion of trade contacts with a reduction in economic dependency. Some economists viewed these potential effects as being of such importance that UNIDO adopted the "Lima Target" in the mid-1970s under which 25 percent of world industrial production was to originate in developing countries by the year 2000, as opposed to about Principal Economist, International Trade Division, World Bank, Washington, D.C. 20433. The views expressed in this paper need not reflect those of the World Bank or its staff. I would like to thank Bela Balassa, Peter Lambert, Vikram Nehru and Refik Erzan for comments and suggestions.

' The pessimistic view of the terms-of-trade for commodities is often associated with the work of Prebisch (1950) although this has been chaDenged by a number of subsequent studies. A description of the potential adverse effects that commodity price instability may have on exporting developing countries can be found in Michaely (1967). However, it must be admitted that empirical studies that attempted to documen **t** he relation are st,rprisingly mixed and inconclusive. Specifically, MacBean (1966) and Coppock (1962) concluded that no statistical evidence exists to support the proposition that commodity price and export earning instability influence developing country growth. However, studies by Massell (1970) and Leith (1971) reach opposite conclusions.
2 12 percent in the mid-1970s.2 Another important point is that some economists and policy makers seemingly view statistics on manufactures as a measure of a country's development; e.g., the higher the value or share of manufactures in total production or exports the higher the presumed level of industrialization.

As a results of these potential attributes, extensive statistics are compiled and numerous empirical studies have been undertaken on trends in, and the composition of, developing countries' exports and production of manufactures.3 However, in spite of this widespread interest, a key unresolved problem is that there is no general agreement on what constitutes a "manufactured" good. National and international organizations now use definitions of manufactures for compilation of production and trade statistics that contain major differences which may affect the findings and policy conclusions of empirical analyses. For example, statistical production (output) series published by GATT and the World Bank (IBRD) include goods like refined petroleum, processed animal and vegetable oils, tobacco products and consumable alcohols us manufactures while such items are excluded from these organization's definition of manufactures employed for compilation of trade data. This implies that some manufatud good Case to b a manufactu mrly 2 The World Bank (1987) provides a comprehensive analysis of the role of trade policy in stimulating the industrialization of developing countries. While much contemporary thinking on development policy continues to accent the importance of manufactures production, the World Bank (1986) argues that the reduction of domestic biases against agriculture have often been a key element affecting the success or failure of industrialization plans.

3 Appendix tables to the World Bank's annual Ldd nz1 provide data on individual country's trade i manufactures. UNCIAD (various issues) and GATI (various issues) also provide adetailed historical series on the manufactures trade of developed and developing countries. However, **these** three sources compile statistics on production of manufactures on a very different product base. UNIDO (1982) employed national trade statistics to compute indices of revealed comparative advantage for various countries manufactures exports. These tabulations are made using a product base that is consistent for both trade and output series.
3 b1caus thgy cross 2 national frontier.<sup>4</sup> It also greatly reduces the utility of the data series since trade and output statistics are on a non-comparable base.

This paper will assess the various definitions of manufactures that are employed with the objoctive of determining the principal ways in which they differ. Underlying conceptual issues are also examined in order to determine the justification for the differences. In addition, these alternative defrnitions are applied to actual developing countries' exports to quantitatively assess the importance of their differences for measuring the level, share and trends in manufactures trade. These results are also used to evaluate the validity of international organizations country groupings like "fast growing exporters of manufactures" or "newly industrialized countries." This study closes with an overall assessment of the importance of the definitional problem for measuring manufactures production and trade and also identifies specific products responsible for major discrepancies in statistical series. Proposals are also made for reconciling differences between the various definitions.

# XT. Q a

Conceptually the distinction between broad classes of goods like "commodities and "manufactures" appears relatively straightforward. Several international organization publications define a manufacture broadly as "an item that experiences considerable change in shape, value, production 4 For example, in GATT (1987) trad in manufactures is compiled on the basis of all products falling in SITC groups 5 through 8 less 68. See the notes or definitions presented on page 139 of the GAIT report as well as appendix tables on pages 155 to 227. This same source defines (p. 139) manufactures otlut as Section 3 of the ISIC classification which includes a broad range of goods falling in SITC 1, 2, 3, 4 and 68 as well as tne more limited grouping used for trade. As a result, the statistical series on manufactures trade and production presented by GATT (see Appendix II) are on a noncomparable base, a point that greatly limits this information's utility. The IBRD has followed similar procedures. See World Bank (1987).
4 characteristics, or end uses as a result of some (human controlled) physical or chemical tansformation process.<sup>5</sup> In contrast, commodities are defined as agricultural or mineral goods that are sold in the **raw** form in which they naturally occur. Commodities consist of unprocessed agrcultural goods classified in SITC 0, I and 2 (i.e., items Wke cocoa and coffee beans, tobacco leaf, logs and natural rubber), or ores and minerlls like phosphate rock, iron ore, or sulphur (all are in SITC 2).

While this distinction between manufactures and commodities is conceptually useful, difficulties have resulted from some organization's practice of excluding certain "consumables" from the former. These exclusions are items that completely lose their physical identity or "disappear" onoe they enter the process in which they normally are used.° Two important examples of these exclusions are human consumables like processed beverages, tobacco, foods and feeds (in SlTC 0 and 1), and refined petroleum - products (SITC 3). Many individual products in these one-digit S1TC groups like jet aviation fuels, gasoline, alcoholic beverages, cigarettes, etc., -- have undergone a high dee', of processing, often in very capital intensive production processes (Yeats, 1989), and their exclusion from definitions of "manufactures" appears ' The lack of precision in the term "considerable change" is apparently a reason why lightly processed agricultural and mineral products in SlTC 2 (shaped wood, hides and skins, woodpulp, e'c.) are excluded from some definitions of manufactures. These items are subjectively judged not to have undergone sufficient processing (transformation) to differentiate them from their raw form commodity component. Similarly, some products classified in SITC 68 (nonferrous metals) are only lightly processed above their raw ore form and this caused the whole two-digit group to be dropped from some definition of manufactures. Wall (1979) argues convincingly that the degree of processing is a crucial element in distinguishing commodities from manufactures, but various defects in SlTC based product classification make it difficult to objectively apply this standard.

6 There are several analytically useful classification schemes that atempt to distinguish between types of manufactures on the basis of their physical or production characteristics. Balassa (1965) identifies four classes of manufactures: investment goods; consumer goods; and two groups of intermediate stage manufactures hat were normally employed in further production processes. Kojima (1964) classifies manufactures into four groups depending on an items labor and capital intensity in production and whether it originates in "heavy" or 'light" industry. Yeats (1991) constructs processing chain classifications which differentiate between some 30 primary commodities and the manufactured good they normally are used to produce.
_5_

**highly** arbitrary. This direct consumables criteria was undoubtedly one reason why products in the crude material group (SITC 2) were dropped from GATT and World Bank definitions of manufactures, although the relatively light degree of processing of some products in this group was no doubt a contributing factor.' What are the implications of these conceptual points for the different statistical series on manufactures production and trade compiled by various international organizations? First, the degree of processing an item has received should be a key factor in determining whether a specific product is classified as a commodity or manufacture -- the greater the degree of processing the greater the case for classifying an item in the latter group. However since there is no completely objective standard for determining exactly when a product has passed the threshold between "commodities" and "manufactures" reasonable disagreements may exist as to how some items should be classified. These disagreements may be expected to center on "lightly processed' items falling in SITC 2' and 68. However, a more conceptually questionable and empirically important practice involves the exclusion of "disappearing consumables" from definitions of manufactures. Indeed, many items in the excluded groups experience a high degree of processing and also have very similar counterpart products that are included in every defnition of manufactures used by international organizations.8 The present study argues tbat the conceptual basis for excluding these items is weak and the

**_'_** This study focuses on the distinction between manufactures and other types of physical goods, but a point that has received relatively little attention is that the distinction between some manufactures and service industry outputs may be equally blurred. For example, some "manufactures" that are often made to order (ike many machine tools or specialist semiconductors) could be argued to be essentiaDly "services" in nature as a large part of the final purchase price consists of the specialist design. Indeed, where the design is carried out separately it is a "service" and where it is carried out by the same enterprise that produces the final good it is a "manufacture".

> **_8_** For example, (human) consumable alcoholic beverages falling in SITC 112 are excluded from World Bank and UNCrlAD defrnitions of manufactures while industrial alcohols are included. Refined petroleum products (gasoline, lubricants, jet aviation fuels and kerosene) in SITC 332 are excluded while mineral tars and crude petroleum based chemicals (SITC 52) are included. Tobacco manufactures (SITC 12) along with petroleum refining, which are among the most capital intensive sectors in the U.S., are also excluded.
6 exclusion is of sufficient importance to greatly weaken the utiltiy of available trade and production series for many of the uses for which they were intended.

# m. Alternative Definitions of Manufactured Goods

A review of previous studies and sources of empirical information on the composition and value of manufactures production or trade shows that at least five different defnitions for these products have been used (see Table 1 for a description of their major characteristics). In terms of the Standard International Trade Classification (SITC) system, one set often centers on a "core group" of products classified in SITC _5_ through 8 (less SITC 68-nonferrfus metals) with varous other items either added or deleted. For example, the World Bank in the World Development Report 1987 (WDR87) used a definition that covers SlTC _5_ to 8 less 68 (nonferrous metals). Also excluded were textile yarn and thread, cotton fabrics, special textile fabrics and pearls and precious stones, although in most studies the Bank defned manufactures as all products in SITC S to 8 less 68 (see Table 1).9 UNCTAD employed a defnition of manufactures for compiling trade data that excluded ferrous metals (SITC 67) as well as the nonferrous metal group from the core group of products.'° A limited number of studies included the nonferrous metals products (SlTC 68), thereby defring manufactures as all items classified in SITC groups _5_ though 8.

9 World Bank (1988, p. xi). These and other defnitions of manufactures often encounter major problems with the SITC system which does not adequately distinguish between prmary and fabricated goods. For example, SITC 667.2 does not separate raw uncut diamonds (a primary good) and cut and polished diamonds (which could properly be considered a manufacture). UNIDO and the World Bank have excluded SITC 667 due to the preponderance of uncut gems in many African countries' exports (see, for example, the data on Sierra Leone in Table 2). This exclusion drops cut and polished diamonds which constitute a major component of Israel's manufactures trade (Table 2).

'° See, for erample, UNCrAD's Handbook on Internationa Trde and evelopment Sta_ for other years. UNCrAD classified SITC 67 and 68 in a separate "ore and metals" group which included unprocessed raw ores as well as some highly fabricated finished metals products.
7 In contrast to approaches which focus on products in the core group, defrnitions of manufactures have been used for compilition of trade data which iuclude some highly processed food, beverage, tobacco, animal and vegetable oils and (refined) petroleum products. UNIDO, in pardcular, extensively utilized this approach which added thirty-two, three and four-digit SfTC items to the core group (see Appendix Table 1)." In addition, UNIDO deleted pearls and precious stones (also dropped by the World Bank in MR(87)), developed cinematographic fim, and works of art and antiques from its derfintion of manufactures. UNIDO's objectives in utilizing this defnition was to reconcile the major differences that existed between production and trade series for manufactures, and also to include important fabricated goods excluded from the limited core definitions. In terms of product coverage, the result was quite close to the IBRD and C ATT series on manufactures output (i.e. GATr(2) in Table 1).12 For this reason, the following analysis frequently contrast results from the UNIDO (trade nd output) defimition of manufactures with those for the IBRD/UNCTAD/GATT definition.

A question of considerable importance concems the influence of these different defiitions on production and trade data series and empirical studies that employ the statistics. For a test, trade statistics for 72 developing countries were drawn for 1987 directly from United Nations Series D trade tapes. These data were then used to compute the total exports (in United States dollars) of each country as well as exports

**"** As noted, the different definitions have been due to a reluctance to classify processed foods (consumables) as manufactures, but it should be noted that consumables are included in the core definitions. For example, SITC 5 contains materials like vitamins and provitamins (541.1), food dyes (532.1), gelatin (599.5) and various pharmaceuticals (541.4).

12 Since the GATT(2) definition was in terms of ISIC industries an available concordance was employed to identify matched SITC products. The latter were then used to tabulate trade statistics from the UN Series D tape.
8 Table 1. Aniysis of Alterative Definitions of Manufactured<sup>ProdlcUa Usea by National andlnternationalO</sup> nization

|Ddrintion|Originatig Institution|SITC G3roups Included|Notable Omission and/or Inclusions'|
|---|---|---|---|
|I|United Nations (UNCTAD),<br>CleneralAgreement on Tariffs<br>and Trade GATT(I) and World<br>Bank.|S through 8 les 68|Includes all goods classified as chemicals (5),<br>manufactured goods classified by materal (6)<br>excluding nonferrous metals (68), machnery<br>and ttansport equipment (7), and<br>miosellaneous manufactured articles (8).<br>Exclusion of SfTC 68 means that owe hklWly<br>fabricated nonferrous meinis products (i.e,<br>copper, aluminum, nickel, tin plates, shape,<br>bars and tubes, etc.)**are**not included as<br>rianufactursc. Also oxcluded are highly<br>processed food products in S1TC 0), dilled<br>and fermented alcoholic beverages and<br>tobacco manufactures in SITC 1', sawn<br>lumber and wood pulp in SITC (2), and<br>refined vegetable oils in SITC 4.|
|2|UNCTAD (2)|5 through 8 less 67 and<br>68|Similar to the UNCrAD4OATT definition<br>excep**t**hat both iron and steel (67) and<br>nonferrous metals (68) arn excluded.|
|3|World Bank in WoQrd<br>lkvdoeDLt RV.QM 1987|S through 8 less 68, 651,<br>652, 654, 655 and 667|Similar to the usual World Bank defmition<br>oxcpt five threo4igit SfTC products ae also<br>excluded from manufactures: textile yarn and<br>thread (651), cotton fabri¢c<br>3 (652), tulle, lace,<br>embroidery and ribbons (654), special textile<br>fabrics (655) and pears and precious stones<br>(667)|
|4|UNIDO<sup>4</sup>|5 through 8 less 68 and<br>several minor products.<br>Major items from SITC<br>0, 1, 2, 3 and4are<br>included.|Pearls and pe¢ious stones (667), developed<br>cinmatographic films (893) and works of art<br>and antiques (896) are excluded. Included are<br>major prepared food products, beverages,<br>tobacco manufactures, petroleum products and<br>animal and vegetable fats and oils. For<br>specific**s**ee Appendix Table 1.|
|S|GArr(2)'|S through 8 less 68 plus<br>major groups of<br>processed goods in SlTC<br>0, 1, 2, 3, 4 and 68.|Used for compilation of stistics on<br>manufactured production. As a result,<br>pro4uction and trade data are not comparable<br>since they are on a diTernnt base.|
|6|Test Proposal|S through 8 less<br>iunwrouIhA<br>nonferrous<br>metals in 68|Similar to the UNCrAD.GATT definition<br>but includes refined copper,nickel,aluminum,<br>lead, zinc, and tin bars plates, tubes and foil<br>(682.2), (683.2), (684.2), (686.2) and (687.2).|

1 Standard International Trade Classification (SITC) numbers are<sup>shown in pareathesis.</sup> 2 While consumable slcoholic beverages (SITC 112) are excluded,<sup>non-consumable</sup> alcohols (SlTC S12.2) are included in the definition of manufactures.

3 While cotton fabrics (SITC 652) are excluded silk, wool, linen,<sup>jute and hemp fabrics (SrTC 653) are included in the definition of</sup> manufactures.

4 As elaborated in UNIDO (1982) among others.

_5_ As elaborated in GAIT (1987, p. 139).
9 of manufactures using each of the defritions listed in a 'ble 1'3 In addition, an alternative proposal was tested that includes all _pmesc_ nonferrous products classified in S1TC 68 as manufactures (i.e., copper tubes, aluminum plate, zinc wire, etc.), but excludes the unwrought nonferrous metals. The rationale for this distinction is that many of the former have undergone a considerable degree of processing so they conceptually could be classified as manufactures.

Table 2 summarizes the empirical results when these alternative definitions of manufactures were used in connection with actual trade data for 72 developing countries. The table shows the value of each country's exports that would be classified as manufactures and the share of these products in total trade. To asr-' t in interpreting these statistics, the results for one definition (that used by IBRD/UNCIADIGATT for trade data) are arbitrarily used as a standard and trade values derived under alternative trade or production definitions flagged if they differed by more than 25 percent. Finally, similar computations were made (see the memo item) for France, Federal Republic of Germany, United Kingdom and United States to detennine the results from the alternative definitions of manufactures for industrial countries with a broader range of export products.

The results confirm the non-comparability of the tride and output series and the importance of the defnitional problem for manufactures, between the alternatives that hinge around a core group of products in SITC 5 through 8, and between core group and broader defimition **s** uch as those employed by

> '} Since many of the developing countries' export records were incomplete or out of data their export profiles were based on reported imports of partners. As such, the 1987 trade data are based on UN import statistics for the following group of countries which had complete reliable records: all developed market economy countries, Argentina, Bangladesh, Brazil, Cameroon, Colombia, Cyprus, Egypt, Faeroe Islands, French Polynesia, Greenland, Guadeloupe, Hong Kong, Hungary, Iceland, Israel, Jordan, Republic of Korea, Malta, Martinique, Reunion, Singapore, Thailand, Trinidad and Tobago, Tunisia, Turkey, Urguay and Yugoslavia. These countries, therefore, constitute the "world" to which the 72 developing countries are exporting.
10 Tatin 2. T Influenac of Altsative Definitow of M tnufactura on Bsodtes of fth Value and Sham of Trade in These Itma

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12 UNIDO and GATT(2).'<sup>4</sup> For example, under the IBRDIUNCTAD/GATT definition the 72 developing countries are estimated to export some $224 billion in manufactures (or 32 percent of total exports) while under the UNIDO definition (which is consistent with that used for output series) manufactured exports total $277 billion (50 percent of total exports on average). In other words, under IBRD/UNCTAD/GATT the value of developing countries' manufactured exports are 24 percent below those reported using the UNEDO dernition.'<sup>5</sup> However, the discrepancy widens (to $320 billion as opposed to $224 billion ) when the IBRD/UNCTAD/GATTtradedefuiitioniscomparedwiththeGATT(2)productiondefinit;onofmanufactured products.

While the differences are impressive in the aggregate, some of the individual country resuts are especially striking. Inclusion of refmed petroleiim, processed foods and consumable alcoholic beverages in the UNIDO definition causes the share of Algeria's manufactured exports to rise 32 percentage points (34.5 percent), while the corresponding share for Argentina more than doubles (to 68.9 percent). As another measure of the importance of the difference in definitions, Table 2 shows 55 of the countries (76 percent of the total) report manufactures exports at least 25 percent greater under the UNIDO definition, while the 14 The World Bank (WD&87 and UNIDO decision to drop pearls and precious stones (SITC 667) from manufactures is a key factor accounting for some major discrepanoies in results for the African countries. For example, under IBRDIUNCTAD/GATT Gambia and Sierra Leone reportedly export **_$85_** million of manufactures, but when precious stones are deleted about $1 million are reported as manufactured exports. Since the African countries exports consists almost entirely of uncut stones the deletion appears appropriate. However, dropping SITC 667 causes Israel's manufactured exports to fall by about 40 percent. In this case the deletion seems questionable since Israel's exports consist largely of cut and worked diamonds.

''The alternative trade definitions produce less extreme, but important differences from the $224 billion in manufactures exports associated with the UNCTAD/GAT1I1BRD definition. For example, the _WM_ (87) definition produces a total of $208 billion, a 7 percent difference; UNCTAD (2) produoes a $219 billion total (2 percent difference); while the test proposal which excludes only unworked SITC 68 products produces a $225 billion total which is less than one half of a percentage point difference from UNCTAD/GATT/IBRD.
13 difference is more than 50 percent for 45<sup>countries.'6 Under the GATT(2) definition of manufactures 52</sup> countries have a difference of 50 percent or<sup>more from the UNCTAD/GATfI1BRD totals.</sup> Given the magnitude of the differences<sup>between results using the IBRD/UNCTAD/GAWT</sup> definition as opposed to that employed by<sup>UNIDO or GATT(2), a question of importance concerns the impact</sup> of individual products on the discrepancies.<sup>Specifically,</sup> if the differences are due mainly to a relatively<sup>small</sup> number of products it might be easier to<sup>reconcile the definitions than it would be if all the products UNIDO</sup> or GATT(2) added to the core group (see Appendix<sup>Table 1) had a more or less equal impact.</sup> Table 3 provides information for assessing<sup>the contribution of individual products to the</sup> overall discrepancies between the core and other<sup>definitions of manufactures. The table shows the total value</sup> of the 72 developing countries' exports of each<sup>product that was added by UNDO to the core group as well</sup> as the items' share in this trade.'<sup>7</sup> In addition, information is also provided on the<sup>importance of each</sup> product in the exports of individual countries.<sup>Specifically, these tabulations show the percentage of the 72</sup> developing countries for which the added product<sup>accounted for 25 to 49, 50 to 74, or 75 percent or more of</sup> the total exports of non-core manufactured products.<sup>Finally, drawing on statistics from the .S. Genwus of</sup> Manufacture, the table shows indices of the<sup>capital intensity of each product relative to that for all United</sup> 16 It should be noted that the UNIDO and GATT(2)<sup>definition of manufactures closely corresponds to</sup> that employed by the United States Department<sup>of Commerce for its national Census of Mfares.</sup> In terms of U.S. SIC codes, the latter includes meat<sup>products (201), dairy products (202), preserved fiti-s and</sup> vegetables (203), grain mill products (204), bakery<sup>products (205), sugar and confection products (206), fats</sup> and oils (207), beverages (208) and miscellaneous food<sup>(209). The U.S. Census also classifies tobacco products</sup> (21) and petroleum refining (29) as manufactures.<sup>See U.S. Department of Commerce, Bureau of he Census,</sup> 1982Census of Manufacture.YVolumes l.Summary and Subject Statistics, (Washington: Government<sup>Printing</sup> Office, 1985).

t7 Similar tabulations were made for the products<sup>added by the GATT(2) definitions of manufactures.</sup> Since the results were so similar to those shown<sup>in Table 3 they have not been reproduced.</sup>
14 States manufacturing industries.'<sup>8</sup> This index takes a value of 100 if the item is produced with a capital intensity that is average for the U.S., with increasing values indicating increasingly capital intensive production. Table 3 shows that a relatively small number of products are important in accounting for the difference between the core and UNDO (or GATT(2)) definitions of manufactures with refined petroleum products being a key item. Refined petroleum accounts for 47 percent of the total trade in non-core products and also accounts for one-quarter or more of the exports of 39 of the 72 developing countries. Two factors arguing for inclusion of refined petroleum in manufactures are similarities to petroleum based chemicals in SITC _5_ (which are included in IBRD/UNCTAD/GATI core definitions) and the fact that it has a capital intensity more than three times high than the U.S. average for industrial production. Aside from refined petroleum, preserved fish, fruit, vegetables and meat -ombined account for about 18 percent of the total trade in the added products, while prepared animal feeds adds a further 7 percent. All six items have a capital intensity ratio equal to or above the U.S. average for industrial products.

# IV. The Influence on Country Classifications

For various analytical purposes, economists utilize country groupings like "newly industrialized countries", "exporters of manufactures", or "major developing country exporters of manufacturese. Argentina, Brazil, Hong Kong, Republic of Korea, Singapore, Taiwan (China), and Yugoslavia are generally included in '8 The capital intensity index (C.) is based on 1982 U.S. Census of Manufact data and is defined as J (1) C. = _(V./N.)_ / (V,/N 100 where V. and Vt represent value added in industry j and all U.S. manufacturing respectively, while N. and N represent the number of workers in the industry and all U.S. manufacturing activity. These data can ie usefu for evaluating UNIDOs inclusion of each item in :he organization's definition of manufactures since the production of manufactured goods often involves relatively high capital inputs. The reader should note that most of the items listed in Table 3 are included in the U.S. Census and are therefore considered to be "manufactures" by the Department of Commerce.
15 Tabe 3. Evaluadon of the Rdative Imporace of ach UNIDO Noncore Product in Developing Countries Exports

|srrc|Desedption|1987 value<br>of dovdoping<br>country expor<br>(Smill)|U.S. Capital<br>intensty<br>ratio|% of devdopin<br>accounts for more<br>250/o<br>to 49%|g countris whe<br>than 25% of no<br>50ff to 74Y|the product<br>n-ce exports<br>o 75Y**o**r aboe|_% of_tota<br>developing<br>country exports<br>of te non-me<br>products|
|---|---|---|---|---|---|---|---|
|01|Meat and prparations|2,972|100.0|5.6|1.4|0.0|6.1|
|02|Dairy products|322|138.0|0.0|0.0|0.0|0.7|
|032|Preserved fish|1,875|101.9|2.8|1.4|0.0|3.8|
|042.2|<br>Rice ghzed or polshed|386|156.5|0.0|0.0|0.0|0.8|
|046|Meat and flour of wheat|10|167.3|0.0|0.0|0.0||
|047|Meat and flour of non weat creals|17|167.3|0.0|0.0|0|-|
|048|Ceeal preparations|230|388.1|0.0|0.0|0.0|0.5|
|052|Dried fruit|214|134.5|1.4|0.0|0.0|0.4|
|053|Preseved fruit|2,716|129.9|5.6|0.0|0.0|5.5|
|O55|Preserved vgeables|1.232|129.9|1.4|0.0|0.0|2.5|
|06|Sugar and preparations|1,979|150.4|5.6|6.9|4.2|4.0|
|071.3|<br>Cotton|353|Da|0.0|0.0|0.0|0.2|
|072|Cocro powder|90|na|0.0|0.0|0.0|0.2|
|072.3|<br>Cocoa butter|783|na|4.2|0.0|0.0|1.6|
|073|Chocolate pepatons|181|a|0.0|0.0|0.0|0.4|
|074|Tea and mat6|1,128|en|1.4|1.4|1.4|2.3|
|081|Feeding stuff for animals|3.547|134.7|5.6|2.8|0.0|7.3|
|09|Misc.foodpreparations<br>|542|160.6|0.0|0.0|0.0|1.1|
|11|Bevraand spirits|744|198.4|2.8|0.0|0.0|1.5|
|122|Tobacco manufactues|1O|357.4|0.0|0.0|_0.0_||
|221.9|<br>Flourandmeal ofollseeds|5|166.2|0.0|0.0|0.0|-|
|231'|Natural and syntetic rubber|123|92.5|0.0|0.0|0.0|0.3|
|243|Shaped or worked wool|2,754|161.8|9.7|2.8|0.0|5.7|
|251|Paper pulp|724|180.6|0.0|0.0|0.0|1.5|
|262.6|<br>Wool shoddy|I|ua|0.0|0.0|0.0|-|
|262.7|Carded or combed wool|61|na|0.0|0.0|0.0|0.1|
|262.8|Wooltops|230|na|1.4|0.0|0.0|0.5|
|262.9|Wate of wool,ns|24|oa|0.0|0.0|0.0||
|263|Cotton, carded, combed or raw|2,457|a|4.2|4.2|6.9|5.0|
|266|Syntheci fibers|287|190.2|0.0|0.0|0.0|0.6|
|267|Texl waste material|17|na|0.0|0.0|Q0|-|
|332|Refined petoleum product|22.,46|337.3|13.9|9.7|15.3|469|

I The capital intensity inde is based on 1982 U.S. Cesus of Manufactr data and is defined as, C. = ( _-N.)- j*tNt) x_ 10 where V. and V represet value added ia indury j and alg U.S. manufcturing respectively, whb N and N represen **t** he number of woers in the industry and all Lanu 8ring activity. A value of 100 indicates the ector has the same capital intensity as le avere of all U.S. manufacturing acivity with values above 100 indictng progevdy higher capital intity

> 2 Calculated from the share of non oem products in the exports of uh of the 72 countries listed in Table 1.

3 Calculead from the share of non com products in the £i exot of the 72 countries 1sed in Table 1.
16 these groups, but People's Republic of China, India, Mexico and Malaysia often are not. A question of interest is how sensitive these country classifications are to the definition used for manufactured goods.

Table 4 provides relevant information by tabulating 1987 manufactures exports under the IBRD/UNCTAD/GATr and UNIDO definitions for a selection of countries often included (or excluded) from these groups.'<sup>9</sup> The table shows the rank of each country based on total manufactures exports, as defined by IBRD/UNCTAD/GATT or LTNIDO, as well as the compound annual growth rate in these shipments over 1982 to 1987 and 1977 to 1987.

Two points are evident from Table 4. First, several of the countries appear to have been iDcluded in these classifications largely on the basis of their historical importance which has declined considerably in recent years. Argentina, for example, is currently the 16th largest developing coun!ry exporter of manufactures with shipments of less than one-quarter of India's, and also well below other countries like Malaysia, Indonesia, Pakistan, and Thailand. The People's Republic of China, a country often excluded, clearly should be added to the major exporter group. With over $27 billion in exports China was third behind Taiwan (China) and the Republic of Korea.20 '9 See UNCIrAD, Handbook of International Trade and Development Statistics 1987 Supplement, (New York: United Nations, 1988) particularly the country classifications outlined in the general notes on page iii to vii for a list of their "major developing country exporters of manufactures". The World Bank maintains a similar country classification "exporters of manufactures" that includes China, Hong Kong, Rep. of Korea, Singapore, India, Israel, Brazil, Hungary, Poland, Portugal, Romania and Yugoslavia and a few other countries. GATT annually tabulates a list of the 30 leading exporters of manufactures that includes both developed and developing countries. See Table IV.3 in GATT's IntemSnationnLalode .bok, vol. I, various years, for these lists.

20 With _$14.5_ billion in manufactures exports (as defined by IBRD/UNCTAD/GATT) Mexico's teade exceeds that of Argentina, Brazil and Singapore. This would seemingly justify classifying Mexico as a major exporter. However, approximately 70 percent of this trade originates in special plants or areas located near the U.S. border to take advantage of "off-shore assembly" (OAP) provisions in the United States tariff code. These OAP plants import semi-finished or unassembled parts from the U.S. and produce assembled products or manufactures. When these items are re-exported to the U.S., tariffs are not applied to the components produced in the United States. Since the official Mexican trade data exclude these OAP produced items, statistics on this trade must be collected from reported imports by the partner country.
Table 4. The Influence of Altemative Defmitions on Country Classifications of Manufachues Exporters

||UNCTA<br>1987 value of<br>exports ($milion)|D/GATT definit<br>Rank in 72<br>countries|ion of manufac<br>Compound g<br>1982-87|tures<br>rowth rate /o)<br>1977-87|UN<br>1987 value of<br>exports ($million)|IDO definitio<br>Rank in 72<br>countries|n of manufatures<br>Compound gr<br>1982-87|<br>wthate ('/o)<br>1977487|
|---|---|---|---|---|---|---|---|---|
|UNC'AD's Major Exporters of|||||||||
|Manufactrs<br>|||||||||
|Argentina|1,528|16|3.6|7.7|3,523|16|40.1|3.8|
|Brazil|10,255|6|13.4|17.6|16,645|5|9.8|13.3|
|Hong Kong|23,101|4|11.2|13.0|22,890|4|11.9|13.0|
|Korea, Rep.|36,998|2|23.0|18.8|38,293|2|22.9|1&6|
|Singapore|11,803|7|20.8|20.5|15,197|7|_IIA_|16.5|
|Taiwan, China|48,048|1|22.4|21.5|50,483|1|22.1|20.8|
|Other Coatiies<br>|||||||||
|China|27,488|3|25.3|28.0|31,529|3|21.1|25.7~|
|India|6,462|10|13.6|10.7|5,720|11|12.7|8.3|
|Indonesia<br>|2,970|13|39.1|37.2|5,533|12|17.5|15.3|
|sraed<sup>2</sup>|5,761|11|14.6|13.8|4,099|14|12.0|15.1|
|Malaysia<br>|7,197|8|16.4|19.8|10,164|8|12.6|13.2|
|Mexico<br>2|14,531|5|22.7|19.2|16,358|6|21.6|17.0|
|Pakistan|2,125|14|18.9|17.5|2,721|18|17.2|17.2|
|Philppines|3,566|12|9.7|17.5|4,870|13|6.2|10.6|
|Saudi Arabia|1,885|_15_|23.4|28.1|6,033|10|17A|15.8|
|Thailand|5,034|9|25.8|24.0|6,522|9|19.5|183|
|Venezuela|579|17|14.4|19.1|4,019|_15_|-2.4|4.4|

1 Yugoslavia is claTified by UNCrAD as a developing country and is also included in the major exporters of manufactures group. 2 Irael is class by UNCrAD as a developed country.

3 Iladudes products manufactured im offshore assembly plants located m Mexico.
18 As previously noted (Table 2), the alternative definitions of manufactures produce sizeable variations in the reported values of individual countries trade in these goods, but Table 4 shows that differences in country rankings and growth rates also result. Several countries like Brazil, India, Indonesia or Israel have their rank position changing by one to three places while a major change occurs for Saudi Arabia which jumps from 15th position under IBRD/UNCTADIGATT to 10th place when the UNIDO definition is used. Table 4 also shows that the alternative definitions can produce major differences in compound growth rates for manufactures exports (note the 1977-1987 statistics for Indonesia, Saudi Arabia, Philippines, etc.), a point that could lead to important discrepancies in country classifications of "fast growing" exporters of manufactures.

# V. Summary and Conclusions

While economists often stress the importance of increasing developing countries' exports of manufactures, there are major differences in how some national and international agencies define these goods. Using actual trade data for 72 developing countries this study showed that the alternative definitions lead to major discrepancies in the value, share and growth rates of manufactures exports. In addition, the various definitions produce important differences in country classifications such as "major" or "fast-growing" exporters of manufactures.

Sensitivity tests show that relatively few products are responsible for the major differences in results, with the key item being refined petroleum products (SITC 332). Since the product characteristics, value added, and capital intensity of refned petroleum is similar to petroleum based chemicals in SITC _5_ the rationale for excluding these items from manufactures is weak. Similarly, it is also difficult to see why some of the major pro(essed food products are excluded, given the high degree of processing and capital intensive production techniques employed for these items. As previously noted, excluding these items on the basis that they are consumables is inappropriate since similar products (falling in SITC _5)_ are included in the IBRD/UNCTAD/GAIT core definition of manufactures.
19 Without doubt, the major message that emerges from this study is that the failure to compile production and trade series for manufactures on a comparable base greatly reduces the analytical utility of this information. Due to the important differences in product composition, this stucay shows (see Table 2) that the existing data cannot be used for comparative analysis of levels or trends in production and trade, or for derivation of useful measures like apparent consumption or import penetration ratios. Given the potential importance of such information, there is a clear need for the international organizations to resolve these inconsistencies in the defintion of trade and output statistics.
20 Balassa, Bela (1965). "Tariff Protection in Industrial Countries: An Evaluation",<sup>lourmal of oi</sup> & oMz, (December).

Coppock, J. (1962). International EQonomic Instability, (New York: McGraw<sup>Hill).</sup>

- General Agreement on Tariffs and Trade (various issues), Interational (aious eas, (Geneva: GATT).

- Kojima, Kiyoshi (1964). 'The Pattern of International Trade Among Advanced Countries,"<sup>Hitotaubashi</sup> JouXnal of E=oomics, vol. 5, no. 1, (June).

- Lary, Hal (1968). _rts of Ma_ufacturs fror s t)evelopcd Couries, New York: (National Bureau of Economic Research)

- Leith, J.C. (1971). "Export Concentration and Stabilily: The Case of Ghana," onag. .Bulle1inQfahm, vol. 1, pp. 45-55.

- MacBean, A. (1966). Exprt Instability and Eonomic Developmen , (London: Allen and Unwin.

- Massel, B. (1970). "Export Instability and Economic Structure," A a ovol. 60,pp.618. 30. (Sept.)

- Michaely, M. (1967). Concentration in Intematinal lrade, (Amsterdam: North Holand).

- Prebisch, Raul (1950). The Economnic Developmnt of Latin America and its Principal Proble (New York: United Nations Economic Commission on Latin America).

- UNCTAD (various issues). Handbook of International Trade and Development Statistic, (New York:<sup>United</sup> Nations).

- UNIDO (1982). ChanginPatterns of Trade and World _Industy:_ an Empircal Study<sup>on Revealed</sup> Com.Parative Advanta, (New York: United Nations).

- US. Department of Commerce, Bureau of Census, 1982 Census of Manufactures.<sup>Volume l. Summar</sup> d Subjec Stati1i, (Washington: Government Printing Office, 1985).

- Wall, David (1979). "Industrial Processing of Natural Resources," World Bank Comodity<sup>Workng PAe</sup> _NLQ_ 4, (Washington: World Bank, April).

World Bank (1986). Wodd Development Report 1986 (New York: Oxford University Press).

World Bank (1987). World Development Rport 1987, (New York: Oxford Universty,<sup>Press).</sup> l ~~~ ~'
21 Yeats, Alexander (1989). "Shifting Patterns of Comparative Advantage: Manufactured Exports of Developing Countries," Policy. Planning and Research Working Paper No. 165, (Washington: World Bank).

Yeats, Alexander (1991). "Do Natural Resource-Based Industrialization Strategies Convey Important (Unrecognized) Price Benefits for Commodity-Exporting Developing Countries?", Word R Working Paper No. 580 (Washington: World Bank, January).
A 22

# SrrC Grgous Included in the UJNIDOQ Derinition of Manufacures

# SrrCmCrup Dduption

|01|Meat and meat preparation|
|---|---|
|02|Dairy products and eggs|
|032|Fish in airtight containers, n.e.s. and fish preparations|
|042.2|Rice, glazed or polished|
|046|Meal andflourof wheat or of meslin|
|047|Meal and flour of cereals except of wheat or of meslin|
|048|Cereal preparations and starch|
|052|Dried fruit|
|043|Fruit, preserved and fruit preparations|
|_055_|Vegetables, roots and tuber, prepared or preserved|
|06|Sugar, sugar preparations and honey|
|071.3|Coffee extracts, essences, concentrates and similar preparations|
|072.2|Cocoa powder, unsweetened|
|072.3|Cocoa butter and cocoa past|
|073|Chocolate and other food preparations containing cocoa or chocolate|
|074|Tea and mat6|
|081|Feeding-stuf**f**or animals|
|_09_|Miscellaneous food preparations|
|11|Beverages|
|122|Tobacco manufactures|
|221.9|Flour and meal of oil-seeds, oil nuts and oil kemels|
|231'|Crude rubber including synthetic and reclaimed|
|243|Wood, shaped or simply worked|
|251|Pulp and waste paper|
|262.6|Wool shoddy|
|262.7|Wool or other animal hair, carded or combed (excluding tops)|
|262.8|Wool tops|
|262.9|Waste of wool an other animal hair, n.e.s.|
|263|Cotton|
|266|Synthetic and regenerated (artificial) fibers|
|267|<br>Waste materials from textile fabrics (including rags)|
|232|Petroleum products|
|4|<br>Animal and vegetable oils and fats|
|_5_|<br>Chemicals|
|62|Manufactured goods classified chiefly by material|
|7|Machinery and transport equipment|
|83|<br>Miscellaneous manufactured articles|

1 less 231.1 natural rubber and similar natural gums

- 2 less 667 pearls and semi-precious stones

3 less 863 developed and cinematographic film and 896 works of art, collectores pieces and antiques.
# PRE Working Paper Series

|||Autho<br>IQ||Contact<br>for1aper|
|---|---|---|---|---|
|WPS74|2 The Cost of the District Hospital:<br>A Case Study from Malawi|A. J. Mills|August 1991|0. Nadora<br>31091|
|WPS743|Antidumping Enforcement in the<br>European Community|Angelika Eymann<br>Ludger Schuknecht|August 1991|N. Artis<br>37947|
|WPS744|Stainless Steel in Sweden: Anti-<br>dumping Attacks Good Internationa<br>Citizenship|Gunnar Fors<br>l|August 1991|N. Artis<br>37947|
|WPS745|The Meaning of "Unfair in U.S.<br>Import Policy|J. Michael Finger|August 1991|N. Artis<br>37947|
|WPS746|The Impact of Regulation on<br>Financial Intermediation|Dimitri Vittas|August 1991|W. Pitayatonakarn<br>37666|
|WPS747|Credit Policies in Japan and Korea:<br>A Review of the Literature|Dimitri Vittas|August 1991|W. Pitayatonakarn<br>37666|
|WPS748|European Trade Patterns After the<br>Transition|Oleh Havrylyshyn<br>Lant Pritchett|August 1991|N. Castillo<br>37947|
|WPS749|Hedging Commodity Price Risks in<br>Papua New Guinea|Stijn Claessens<br>Jonathan Coleman|August 1991|S. Lipscomb<br>33718|
|WPS750|Reforming and Privatizing Poland's<br>Road Freight Industry|Esra Bennathan<br>Jeffrey Gutman<br>Louis Thompson|August 1991|B. Gregory<br>33744|
|WPS751|A Consumption-Based<br>Direct Tax for<br>Countries in Transition from Socialis|Charles E. McLure, Jr.<br>m|August 1991|CECSE<br>37188|
|WPS752|Inflation and Stabilization in<br>Yugoslavia|Roberto de Rezende<br>Rocha|August 1991|L. Ly<br>37352|
|WPS753|The CMEA System of Trade and<br>Payments: The Legac; and the<br>Aftermath of Its Termination|Martin Schrenk|August 1991|CECSE<br>37188|
|WPS754|Estimating Returns to Scale with<br>Large Imperfect Panels|James R. Tybout<br>M. Daniel Westbrook|August 1991|S. Fallon<br>37947|
|WPS755|Hedgins, Crude Oil Imports in<br>Developing Countries|Stijn Claessens<br>Panos Varangis|August 1991|D. Gustafson<br>33714|
|WPS756|Taxes Versus Quotas: The Case<br>of Cocoa Exports|Arvind Panagariya<br>Maurice Schiff|August 1991|S. Fallon<br>37947|
|WPS757|Managing the Transition: Enhan&cg<br>the Efficiency of Eastern European<br>Governments|Eric Rice|August 1991|P. Infante<br>37642|
# PRE Working Paper Series

||_Tie_|Author|x|Contact<br>fr<br>_ape_|
|---|---|---|---|---|
|WPS758|Is There Excess Co-Movement of<br>Primary Commodity Prices? A<br>Co-Intef,.ation Test|Theodosios B. Palaskas<br>Panos N. Varangis|<br>August 1991|D. Gustafson<br>33714|
|WPS759|The Profamilia Family Planning<br>Program, Columbia: An Economic<br>Perspective|Jesus Amadeo<br>Dov Chernichovsky<br>Gabriel Ojeda|August 1991|0. Nadora<br>31091|
|WPS760|How Conflicting Definitions of<br>"Manufactures" Distort Output and<br>Trade Statistics|Alexander J. Yeats|September 1991|J. Jacobson<br>33710|
|WPS761|Uncertainty and the Discrepancy<br>between Rate-of-Return Estimates<br>at Project Appraisal and Project<br>Completion|Gerhard Pohl<br>Dubravko Mihaljek|September 1991|P. Lee<br>81950|