Luxembourg economic figures are sometimes skewed by its 165,000 cross-border workers
Photo: Will Bakker (CC BY-SA 2.0)
Carte blanche: Gross national income, not gross domestic product, should be used for international comparisons of the Grand Duchy’s economy, writes Carlo Klein.
Luxembourg is considered an import-driven economy (PDF), meaning that due to its small size the country needs to import a large amount of goods and services that cannot be produced domestically. To pay for all these imports Luxembourg has to export other goods and (mainly) services. Overall Luxembourg generates a surplus in its current account meaning that the total value of exports and inflow of incomes is larger than the corresponding outflows.
The structure of the current account of Luxembourg’s balance of payments clearly shows the particularities of our economy: it is a service-based economy that needs importing tangible goods and non-resident factors of production (cross-border workers and imported capital). As a consequence Luxembourg mainly exports services, creating a surplus in the balance of trade in services but imports a large amount of tangible goods, and thus creating a large deficit in our balance of trade in goods.
Why does this balance matter for the discussion about material wellbeing in Luxembourg? If we consider the point of view of all the firms operating in Luxembourg, GDP (gross domestic product) presents the value added created by these firms during a year; value added that will be used to provide income to the factors of production having allowed to produce this value. But due to the particular structure of our economy (reliance on cross-border workers and foreign capital) this indicator does not allow to evaluate the available income for residents.
Gross national income
Therefore (even if we neglect the distribution of income) we have to consider GNI (gross national income), which is GDP minus the net primary income, if we want to assess the available income in Luxembourg.
In 2012, for example, Luxembourg’s GDP (PDF) was equal to €42.9 billion, but at the same time there was a net outflow of primary incomes of €13.7 billion for cross-border workers’ gross wages and for capital income for non-resident capital owners, adjusted for cross-border social security contributions and benefit flows (PDF), so that Luxembourg’s GNI only corresponded to €29.2 billion.