Dutch earnings from international trade

Authors: Alex Lammertsma, Tom Notten

International trade is an important source of income for the Dutch economy. The Netherlands exports domestically produced goods, but also re-exports goods and exports services. A significant portion of these exports is organised within global value chains (GVCs). This implies the use of many imported goods and services in the production of these exports. What is the total value of Dutch external trade and how much revenue does it generate per euro? How much does trade contribute to Dutch GDP? How many direct and indirect jobs do exports create within the Netherlands? And how much import content is needed in order to produce the various types of exports?

2.1Key findings

This chapter will show that in 2017, the largest earnings in Dutch exports were generated by exports of domestically produced goods, namely 119 billion euros. Service exports were good for 99 billion euros and re-exports were worth 33 billion euros. However, differences between the margins in domestic exports, re-exports and service exports are significant. For every euro in export turnover in 2017, the Netherlands received the most from service exports (64 cents per euro), followed by domestic exports (52 cents per euro); it earned the least from re-exports (14 cents per euro). The Netherlands’ total gross export value of 616 billion euros resulted in a contribution to GDP of 250 billion euros, or 34 percent.

Production in the Netherlands is part of so-called global value chains (GVCs), as indicated by the extent of import (import content) that is necessary to accomplish the exports. This extent varies among the different types of exports, however. For re-exports in 2017, the required import content was 86 percent. This share was 48 percent in domestic exports and 36 percent in service exports.

In 2017, exports provided 2.3 million direct and indirect full-time jobs – more than 30 percent of total employment in the Netherlands. The largest share of indirect jobs is associated with exports of domestically produced goods, while exports of services provides the smallest share.

2.2Contribution of exports to GDP

In 2017, total gross exports amounted to 616 billion euros, an increase of 8 percent relative to 2015. This comprised domestic exports, which rose from 212 to 228 billion euros (+7 percent); re-exports, which went from 206 to 233 billion euros (+13 percent) and service exports, rising from 152 to 155 billion euros (+2 percent), see Figure 2.2.1. In the case of re-exports, a Dutch company (temporarily) becomes the owner of the goods, which are imported and then leave the country in a completely or virtually unprocessed condition. Among exports of services, the largest categories are transport services; the use of intellectual property; and technical, trade-related and other business services (CBS, 2019a).

Highest earnings per euro from export of services

To get from gross export flows to the contribution to GDP – the value added of gross exports – the consumption of the imported goods and services that serve as inputs has to be deducted from the gross export value. This indicates how much the Netherlands earns from exports. However, there are marked differences between the export categories in terms of the value added per euro of exports. In 2017, the Netherlands earned the most per euro – around 64 cents – from exporting services. For domestic exports, the figure was 52 cents per euro and for re-exports it was only 14 cents. On average, the Netherlands earned 41 cents per euro of exports in 2017, compared with 42 cents in 2015 and 2016.noot1 In total, exports contributed over 250 billion euros to GDP in 2017, which is 34 percent of GDP. The bulk of this total, 119 billion euros, came from domestic exports, while 99 billion euros were earned through service exports and 33 billion euros through re-exports.

2.3Export-related employment

Exports of goods and services accounted for approximately 2.3 million direct and indirect full-time jobs in 2017.noot2 Nearly 32 percent of total employment in the Netherlands can therefore be attributed to exports (Figure 2.3.1). Of this total employment effect, 14 percent can be attributed to domestic exports, 4 percent to re-exports of goods and 14 percent to service exports.

However, the amount of employment due to exports within the exporting sectors varies from one export category to the other. In 2017, domestic exports in those sectors accounted for 400 thousand full-time jobs; for re-exports the figure was 70 thousand full-time jobs; and for exports of services it was 542 thousand full-time jobs (Figure 2.3.2). The total was therefore more than 1 million direct full-time jobs. This means there was a total of 50 thousand more full-time jobs compared to 2015.

In addition to the jobs that are a direct result of international demand for Dutch goods and services, there are also jobs that are created due to other inputs and services that are needed for the production of exported goods and services. For example, there are the materials needed in the production process, but also services such as cleaning, catering, banking services, and internet services. Insofar as these goods and services originate in the Netherlands, this also provides jobs, known as indirect jobs.

1.3 million indirect jobs through exports in 2017

In total, exports provided 1.3 million indirect jobs in 2017, which was 74 thousand more than in 2015. But not every type of export is a source of indirect employment. For example, significantly more indirect jobs than direct jobs are due to the production of domestic exports. In 2017, there were 400 thousand direct jobs against some 621 thousand indirect jobs. Therefore, for every 1 direct job there are around 1.6 indirect jobs. There are even more indirect jobs associated with re-exports, relatively speaking. In that area, there were 70 thousand direct jobs, against 227 thousand indirect jobs. This means that for every direct job in re-exports, there are more than 3 indirect jobs. In contrast, exports of services provide relatively fewer indirect jobs and the proportions are reversed. Exports of services provided 449 thousand indirect jobs, against 542 thousand direct jobs, which equates to 0.8 indirect jobs for every direct job.

Many indirect jobs at (temporary) employment and in wholesale trade

Exports provide indirect jobs in a large number of sectors, but this effect is not equally strong in all sectors. Many indirect jobs are provided by job placement and temporary employment agencies and by wholesale trade in particular (Figure 2.3.3). Of the 1.3 million indirect jobs in 2017, 238 thousand were generated by job placement services and temporary employment agencies due to exports, and 203 thousand in wholesale trade.

Indirect jobs attributed to domestic exports, re-exports and service exports can be broken down into different sectors. Of the 621 thousand indirect jobs in 2017 resulting from domestic exports, 122 thousand were associated with job placement services and temporary employment agencies, and 105 thousand through wholesale trade. Many jobs were also created in other sectors, though these were significantly fewer in number (Figure 2.3.3). Examples of these are holdings and group services, overland transport, and agriculture and hunting. Between 24 thousand and 50 thousand indirect jobs in these sectors were due to domestic exports.

In re-exports, indirect jobs were also spread over a large number of sectors. Here too, most of the indirect jobs were provided by job placement services, temporary employment agencies and wholesale trade. Of the 227 thousand indirect jobs associated with re-exports in 2017, 78 thousand were in the wholesale trade sector and 27 thousand through job placement services and temporary employment agencies, while the numbers were significantly smaller in other sectors. In the case of holdings and group services, overland transport, and automobile trade and repairs, for example, between 10 thousand and 18 thousand indirect jobs were generated.

For exports of services in 2017, the overwhelming majority of the 449 thousand indirect jobs were provided by job placement services and temporary employment agencies. Wholesale trade was in fifth place with 19 thousand jobs. Places two to four were occupied by holdings and group services, retail trade, and facility management.

2.4The import content of exports

The particular significance of imports to exports proves just how closely intertwined the international production processes are. The amount of imports needed to produce exports has changed over time, however. Due to globalisation, outsourcing and specialisation, not all goods and services used in the production of goods and services in the Netherlands are produced locally; a proportion of these are imported. A key aspect of globalisation is the increased international fragmentation of production processes. For instance, the different stages of the production process, such as the design, the manufacture of parts, the assembly, and the sale to users increasingly take place in more than one country.Imports of intermediate goods have risen much more rapidly as a result compared to those of final goods such as consumer goods and investment goods (Hanson et al. (2005), Johnson & Noguera (2012), Timmer et al. (2012) and Timmer et al. (2014)).

Import content of exports nearly 60 percent in 2017

To produce the total exports of 616 billion euros, around 365 billion euros in imported items was needed in 2017. Of these imports, 109 billion euros was used in the production of domestically produced goods and of services; 201 billion euros was used towards re-exports, and 56 billion euros towards service exports. To calculate the value addition of these imports, their value is divided by the value of the exports, which gives the import intensity. Between 2015 and 2017, the import intensity rose slightly for the total of goods and service exports: from 58 to 59 percent. Rising import intensity indicates how much the Netherlands has become integrated into global value chains, also known as vertical specialisation (Hummels et al., 2001). On the other hand, it means that we earn less per euro from exports.

However, the import intensity varies according to the type of export (Figure 2.4.1). In 2017, imports were most relevant in re-exports, at 86 percent import content. Imports used in producing re-exports comprise on the one hand the re-exports themselves and on the other hand the imports used in the production processes of companies that re-export goods, as well as their suppliers. Examples are imports of energy, packaging materials and computer licences. For domestic exports, the import content was 48 percent in 2017 – considerably lower than for re-exports, although this share had increased since 2015. The lowest share in 2017 was 36 percent, which was for the exports of services.

The share of imports necessary for the production of exports rose notably in the 2015–2017 period. In 2015, 64 percent of total imports was destined for the production of goods and services for exports. The remaining 36 percent of imports was used by, for example, consumers (imported goods that consumers buy in shops) or companies (for example machinery that is imported and used in the production process). In 2017, 68 percent of total imports was destined for the production of export goods and services – a rise of 4 percentage points relative to 2015. This is explained by a sharp fall in imports for the purpose of business investments. The share of these imports in total imports of goods and services declined. Fewer imports were therefore needed for building up stocks of fixed capital goods. This decline specifically affected direct imports for capital accumulation.

2.5References

Open references