Apparent consumption

Production and trade data can be combined to calculate apparent consumption as the difference between the value of production and net exports in a given product or service category. This is a measure of apparent consumption in the sense that we assume any differences between production and net exports (production plus imports minus exports) must be by definition satisfied by domestic consumption.⁹ In this way we may get additional hints about the probable causes for the expansion of certain sectors in the OECD economies by considering the demand side of the economy.

In 2006, the shares of agriculture in total apparent consumption were typically below 5% while for most OECD countries the shares of manufacturing were between 20% and 45% (Annex Figure 2.A1). The shares of services range from above 40% in Korea to over 80% in Luxembourg. When we look at the evolution of apparent consumption shares we confirm the expansion of the services sector. The majority of the OECD countries display an increase in the consumption of services. The largest percentage point expansions of consumption of services occurred in Poland, Portugal, and the United Kingdom. Accompanying the increasing services consumption we observe a decrease in the consumption of manufactures and agricultural products.

Can the relative magnitudes of production and consumption changes tell us something about the evolution of broad specialisation patterns in the OECD area and about the role in this process of international trade? One way to look at this is to calculate changes in production and consumption and normalize them with a common denominator, initial production for instance. Proportional changes in consumption can then be compared with propotional changes in production and the difference between them will give us information about the associated proportional change in trade and its direction. Specifically, this kind of analysis allows us to hypothesize about the potential role of international trade in the shift from the production of manufactures to services and how possible imbalances between supply and demand are satisfied by the external sector of the economy.

Therefore, a ratio close to unity would imply demand can be largely satisfied by domestic production. This does not necessarily mean that trade cannot happen but would imply either no trade or an approximately balanced trade in this product category. A ratio smaller than unity would be recorded for a sector which produces a tradeable good and in production of which a country has specialized to the extent that in addition to satisfying its own demand it satisfied demand for this product category in its trading partners. A ratio larger than one would imply consumption demand cannot be satisfied domestically and the country increased its reliance on imports.

Figure 2.9 shows such ratios for the period 1996-2006 for the broad agriculture, manufacturing and services sectors. Services (Panel C) present a striking case with the calculated ratios close to unity across the OECD membership. This reflects the reality that production and consumption of services in aggregate in the OECD area are largey domestically determined. The developments in the services sector can be contrasted with those in agriculture and manufacturing (Figure 2.9, Panels A and B, respectively). In the case of manufacturing sector we observe more variation of the calculated ratios around unity which suggests higher tradeability of this category as well as a more heterogenous pattern of concentration of ouput in the manufacturing sector across the OECD members. On the one side of the spectrum would be the Czech Republic, Hungary, Korea, and the Slovak Republic which seem to have increased their specialisation in the manufacturing sector through international trade in the investigated period. On the other side of the spectrum are Greece and Iceland which seem to have partially satisfied the increasing demand through net imports of manufactures.

In the agricultural sector the variation of ratios across OECD members is even larger. This would confirm the hypothesis of a higher potential for specialization and the comparative advantage in the agricultural sector to be driven by natural conditions such as geography and climate. Moreover, there is also more variation in the proportional changes in production and consumption suggesting a major international adjustment of supply and demand. In Japan and the United Kingdom, for example, we observe both consumption and production decreases. The magnitude of the production drop is larger than the consumption one in the United Kingdom while we observe the reverse in Japan. These two situations imply active external markets in both countries to accommodate for changes in demand and supply.

Overall, the analysis of changes in production and apparent consumption tells us that services are not as actively traded as manufactures and agricultural products and that their expansion in the last decades in the OECD has been a largely domestically driven process. Agriculture and manufacturing are clearly different in this sense and developments in these sectors are more tightly related to developments in international markets.

Panel A. Agriculture

Figure 2.9. Relationship between changes in production and consumption, 1996-2006

Panel C. Services

Source: OECD STAN Database and ITBP.