Production abroad has an effect on Danish GDP

Globalisation has created new business models. Although you can still find traditional manufacturing enterprises with factory production, development, sales and administration gathered within the Danish borders, it has become more common to spread across several countries. An increasing share of the Danish manufacturing enterprises produce their goods or some of their goods without factories in Denmark. In this way, the industrial processing does not take place in Denmark but in a factory abroa

Part of the value added from the processing in factories abroad is included in the Danish gross domestic product (GDP) because the factors of production of Danish enterprises – not least the intellectual capital – contribute to create the value of the foreign factories’ production. The intellectual capital of enterprises is based on research and development, and it is the basis for patents and other intellectual property rights that can be registered and traded. Tangible assets such as machinery and buildings are capital in the country in which they are located. Intangible assets are capital in the country in which their economic owner is registered. In this way, intangible assets are similar to aircraft or vessels, neither of which are geographically confined, but are included in the capital stock of the country in which the airline or shipping firm is registered. In this analysis, we discuss how using a foreign factory affects Danish production and value added.

Main conclusions:

• The production abroad of Danish manufacturing enterprises has grown considerably since it was first recorded in 2005. The increased production abroad of Danish enterprises has resulted in increased hourly productivity in manufacturing and reduced the employee com-pensation share of the value added in manufacturing.
• Gradually, the “factoryless” goods production of the manufacturing industry accounts for a higher share of Danish GDP than maritime transport. Factoryless production and maritime transport are characterised by their relatively small impact on Danish employment and a considerable Danish registered capital stock.
• Moving intangible capital and associated added value from one country to another can make GDP jump, as the Irish GDP did in 2015. This type of jump in GDP does not influ-ence gross national income (GNI) to the same extent, if the owner remains foreign. Be-cause, in the calculation of GNI, the net yield of intangible capital is transferred as factor earnings to the owner’s home country.