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 1. EtusivuLinkki edelliselle tasolle
 2. Artikkelit
    Linkki edelliselle tasolle
 3. 2024
    Linkki edelliselle tasolle
 4. Digital economy rivals construction in Finland


DIGITAL ECONOMY RIVALS CONSTRUCTION IN FINLAND

27.3.2024
Henri Lukkarinen, Eljas Tuomaala
Kuva: istock
In Finland, the digital economy produces about seven per cent of the nation’s
value added. The first comprehensive calculations of our digital economy suggest
that digital service production is especially pronounced in Finland. For now,
the calculations remain experimental.

While digitalisation has become more significant in our society and economy, its
analysis in economic statistics has not been very precise or comprehensive. One
reason for this is the widespread effect digitalisation has on the economy
across all industries, which makes the phenomenon complex to define.

So, digitalisation as a phenomenon is included in economic statistics, but it is
not clearly visible. This issue is addressed by the supply-use tables for the
digital economy.

Instead of a single estimate of the scale of the digital economy, the purpose of
the supply-use tables for the digital economy is to present multiple
perspectives into how digitalisation affects the economy. The framework we have
calculated makes it possible to analyse how the key goods and services for
digitalisation are produced and used in different industries, and how prominent
the key functions of digitalisation are in Finland’s gross domestic product. The
framework illustrates digitalisation by defining new categories of digital
industries and digital products, as well as digital ordering and delivery
methods for products.

“Products” refers to a product framework of national economy supply and use
tables that describes the inputs and resulting outputs of Finland’s national
economy using more than 800 different products. The products include both
physical goods and services.

The reference year for the supply-use tables for the digital economy is 2018.
The reason for the old reference period is the slow production of supply and use
tables for the national economy, and the chosen year allowed international
comparisons of the calculations. The economic significance of digitalisation has
probably continued to grow since then.

Regardless of this potential underestimation of the digital economy in terms of
today, our calculated data allow the structure of digitalisation to be analysed
in many ways. Hopefully, our calculations can offer useful new information about
the digital economy in Finland.  

The size of the digital economy in Finland has been calculated before at least
by ETLA Economic Research (2020), but ours is the first balanced supply and use
table for the digital economy in Finland based on the OECD’s (2019)
international standards, which are still being developed. In addition, our
calculations are based on the concepts and definitions of national accounts,
which makes the data more comparable.

This work was funded by Eurostat, the Statistical Office of the European Union.
Our calculations are experimental and include substantial uncertainties in
places. We therefore present the data at an aggregate level in this article, and
they should be used with caution.

All figures are presented at current prices. For detailed descriptions of the
methods and source material, please contact the authors.


NEW INDUSTRIES DESCRIBE DIFFERENT AREAS OF DIGITALISATION

The supply-use tables for the digital economy include seven new categories of
the digital economy industries: digitally enabling industries; digital
intermediary platforms charging a fee; data and advertising driven digital
platforms; firms dependent on intermediary platforms; e-tailers; digital only
firms providing financial and insurance services; and other producers only
operating digitally. (Table 1)

These industry categories are used to describe comprehensively key economic
production related to digitalisation and illustrate the different connections of
the digital economy.

Table 1. Digital industries and their definitions Digital
industryDefinitionDigitally enabling industriesThis industry includes those
companies which are central to the production of the goods and services required
for digitalisation. For example, this industry includes online service
providers, telecommunications companies, software houses and manufacturers of
information technology devices.Digital intermediary platforms charging a feeThis
industry includes companies that utilise a digital platform to connect the
sellers and buyers of goods and services for a fee. The companies do not own or
produce the goods and services they intermediate. For example, this industry
includes food delivery services, accommodation marketplaces and online auction
platforms.Data and advertising driven digital platformsThis includes companies
that solely operate online and mainly profit by selling data and/or advertising
space. For example, this includes search engine businesses, social media
companies, freeware applications and various trading websites.Digital only firms
providing financial and insurance servicesThis industry includes companies that
offer financing and insurance services and only operate digitally. Conventional
banks and financial and insurance institutions are excluded, even though their
service selection is highly digitalised.E-tailersThis industry includes
wholesale and retail operators that receive at least 50 per cent of their
takings from digital orders. The operators may sell goods or services.Firms
dependent on intermediary platforms, incorporatedThis industry includes
companies that receive at least 50 per cent of their takings from sales on
digital intermediary platforms. The “incorporated” category includes operators
that have a more extensive corporate structure, such as hotels and
restaurants.Firms dependent on intermediary platforms, unincorporatedThis
industry includes entrepreneurs and other actors that receive at least 50 per
cent of their takings from digital intermediary platforms. The “unincorporated”
category includes food couriers and accommodation providers, for example.Other
producers only operating digitallyThis industry includes other service providers
that only operate digitally. For example, these include streaming services and
digital betting services.

Source: OECD 2019

In total, the new categories of digital industries produced EUR 14.9 billion in
value added, corresponding to 7.4 per cent of the national economy’s value
added. This is roughly equivalent to the value added produced by the
construction industry in the same year. The largest industry by value added (at
the character level), which was manufacturing, produced 17 per cent of Finland’s
value added in 2018.

In other words, the value added produced by these digital industries was above
average and played a major role in Finland’s gross domestic product, even though
the industries were not quite among the largest producers (Figure 1). However,
digital inputs are used widely by all industries, and they are very important
for industrial production, for example.

Figure 1. Share of the industries* value added of the entire economy (gross at
basic prices) in 2018

Source: Experimental calculations by Statistics Finland, supply-use tables for
the digital economy 2018. *The figure excludes cross-industry transfers to the
digital industries. The other industries reflect the value added prior to the
redefining of the categories.

Digitally enabling industries is the largest category of the new digital
industries. It includes companies that enable the functions of the digital
economy. For example, this category includes software houses, manufacturers of
information technology devices and wired and wireless online services.

In 2018, digitally enabling industries produced EUR 27.4 billion worth of
products and services for Finland’s national economy and created EUR 12.5
billion of value added for Finland. The share of these industries of the total
value added of digital industries was 84 per cent, making digitally enabling
industries a major part of the value creation of digital industries.     

E-tailers were the second largest digital industry in 2018. This category
includes wholesalers and retailers that primarily sell their goods or services
online. Online wholesalers and retailers may take offline orders, but at least
50 per cent of their orders must be online for the company to be included in
this category. The output of e-tailers amounted to EUR 4.3 billion, producing
EUR 2.1 billion in value added, which was 14 per cent of the value added created
by digital industries.

Table 2. Digital industries in Finland in 2018Digital industriesEUR
mil.ShareOutputValue addedOutputValue addedData and advertising driven digital
platforms90500 %0 %Digital intermediary platforms charging a fee110200 %0
%Digital only firms providing financial and insurance services150900 %1
%Digitally enabling industries27,40012,50085 %84 %E-tailers4,3202,07013 %14
%Firms dependent on intermediary platforms, incorporated30100 %0 %Firms
dependent on intermediary platforms, unincorporated2001401 %1 %Other producers
only operating digitally----Digital economy32,30014,880100 %100 %

Source: Experimental calculations by Statistics Finland, supply-use tables for
the digital economy 2018.

The rest of the new digital industries had a rather marginal impact on Finland’s
economy. Although prominently in the spotlight in recent years, digital
platforms only produced about EUR 70 million in direct value added in 2018
according to our calculations. In this instance, “digital platforms” refer to
both “data and advertising driven digital platforms” and “digital intermediary
platforms charging a fee”.

The indirect effect of these platforms was probably greater, as is suggested by
the value added produced by firms dependent on intermediary platforms, which was
twice that of the digital platforms themselves.

A firm is considered to depend on intermediary platforms if the majority of its
demand is conveyed by digital intermediaries. This category is divided into
incorporated and unincorporated firms. Incorporated operators include hotel
chains that utilise digital intermediary platforms, for example. Unincorporated
operators include accommodation and food delivery services offered by private
individuals, for example.

It is possible that the importance of digital platforms for Finland’s economy
has grown since the reference year, but based on the current calculations, the
platform economy was not a significant factor for the national economy in 2018.

One explanation for the relatively small share of platforms in the digital
economy is that some of them are foreign entities and therefore excluded from
the value added in Finland. Payments made to these platforms, including fees,
count as services imported to Finland. Measuring the phenomenon also involves
considerable uncertainty, especially in the case of unincorporated firms
dependent on intermediary platforms.  

According to value added, digital only firms providing financial and insurance
services were a somewhat larger industry than platforms. This category only
includes companies with completely digital operations, excluding conventional
financial and insurance institutions, even though finance and insurance are
highly digitalised in Finland.  

Other producers only operating digitally were excluded from the analysis because
these entities are quite difficult to identify. Because some similar services
are produced as part of companies’ non-digital core business, they are
unrecognisable as discrete functions, excluding the operators from the category.
In addition, many well-known operators such as streaming services are foreign
entities, whereby they are not included in Finland’s value added but are
considered imported services.


DIGITAL SERVICES COMPRISE THE MAJORITY OF DIGITAL PRODUCTS

The supply and use tables describe the economic production processes in more
detail than other national accounts – they allow the production flows of goods
and services to be analysed. In other words, the economy’s industries represent
distinct production methods that produce physical goods or services from
different resources. For the purposes of this matrix analysis, it was necessary
to create new essential product categories related to digitalisation that
describe the significance of digital products for the national economy as a
whole.

There are four new digital economy product classes: ICT goods; priced digital
services; priced cloud computing services; and priced digital intermediary
services.

Among these, the reclassification of ICT goods and priced digital services was
fairly straightforward. We were able to use the existing product categories of
the national accounts supply and use tables for our calculations more or less
directly. Meanwhile, such clear methods and data sets do not exist for
calculating priced cloud computing services and priced digital intermediary
services. As a result, their calculations pose unique challenges and involve new
methodological solutions.

In terms of supply and use, the largest of the new digital products is priced
digital services, the output of which was EUR 20.7 billion in Finland in 2018
(Figure 2). This product category includes e.g. ICT goods manufacturing
services, software and licensing services, consultation services related to ICT
goods, data transmission services, ICT goods renting and other ICT services.
Imports of these services amounted to EUR 3.7 billion, resulting in a total
supply of EUR 24.4 billion.

Figure 2. Supply* of digital products in 2018, EUR million

Source: Experimental calculations by Statistics Finland, supply-use tables for
the digital economy 2018. *The supply is valued at basic prices, excluding taxes
on products but including subsidies on products.

ICT goods had the second largest supply of digital products. This is especially
explained by the value of imports, EUR 6.3 billion. Domestic output accounted
for EUR 1.9 billion of ICT goods, which was less than cloud services.

By definition, “ICT goods” include those products that are primarily used in
digital information processing and communication, such as information technology
and mobile phones.

The high value of ICT goods imports in relation to goods produced in Finland
reflects how global value chains have shifted the production of these products
to less expensive or more specialised countries. This has also increased the
importance of service production, including digital products. This is evidenced
by the fact that Finland’s domestic production of priced cloud computing
services had already eclipsed ICT goods in 2018.

Roughly speaking, there are three main categories of priced cloud computing
services: 1) Software as a Service (SaaS); 2) Platform as a Service (PaaS); and
3) Infrastructure as a Service (IaaS). We did not break down how domestic
production in Finland is distributed among these categories.

The output of priced cloud computing services was valued at EUR three billion,
which is about 0.7 per cent of Finland’s total output. The imports of priced
cloud computing services amounted to EUR 500 million. It is likely that the
value of both domestic output and imports has increased further, as both
businesses and households have significantly increased their use of priced cloud
computing services since 2018. 

The output of priced digital intermediary services was valued at approximately
EUR 110 million, which is equivalent to the industry defined as digital
intermediary platforms charging a fee. It should be noted that this figure
excludes imports and therefore presents an incomplete picture. The imports of
priced digital intermediary services may be considerable, as the industry’s
largest companies are foreign corporations. We were unable to calculate reliably
the value of the imports with the data sources at our disposal.

Majority of digital products were used as intermediate products domestically,
and domestic intermediate consumption accounted for about half of total digital
product use. Intermediate consumption consists of the value of the goods and
services consumed as inputs in a production process, excluding fixed assets
where consumption is recorded as the consumption of fixed capital.

The industry which most used digital services as intermediate products was
digitally enabling industries. These industries were responsible for 30 per cent
of all consumption of digital services as intermediate consumption in
production. The next largest users of digital services were manufacturing (13%),
public administration and national defence (11%), and financial and insurance
institutions (11%).

The intermediate consumption of ICT goods was more clearly divided between two
industries. Again, digitally enabling industries used most of the ICT goods in
their own production, accounting for 29 per cent of all intermediate consumption
of ICT goods. The next largest user of these production inputs was manufacturing
at 25 per cent. The share of other industries in the intermediate consumption of
ICT goods was much less than 10 per cent per industry.  

Domestic final use was valued at EUR 10.9 billion, exceeding imports by about
EUR 0.8 billion. ICT services were the largest product group in domestic final
use (EUR 6.5 billion), and these services were also the largest group of exports
among digital products (EUR 6.6 billion). (Figure 3)

Figure 3. Use of digital products at purchasers’ prices* in 2018, EUR million

Source: Experimental calculations by Statistics Finland, supply-use tables for
the digital economy 2018. *The use is valued at the purchasers’ prices,
including taxes on products but excluding subsidies on products. Domestic final
use includes consumption expenditure and investments.

The relatively low significance of ICT goods, according to the definition used,
for Finland’s economic production is reflected by the value of exports, which
was EUR 2.5 billion in 2018 – much less than the value of priced digital
services exports. Priced cloud computing services were exported to the tune of
EUR one billion.  

The significance of digital products is better understood when analysed as
shares of all products cycled through Finland’s national economy (Figure 4). All
in all, digital products accounted for about six per cent of the goods and
services produced in Finland in 2018. This is notable because the outputs of the
forest and paper industries had a smaller share, for example.

Figure 4. Share of digital products of all products in 2018

Source: Experimental calculations by Statistics Finland, supply-use tables for
the digital economy 2018.

The share of digital products in the intermediate consumption of all products
was 8.2 per cent. Their exports accounted for 11.2 per cent of all exports of
goods and services, and their imports accounted for 11.7 per cent of all
imports.

Although the volumes of digital product exports and imports are similar, they
differ in structure as explained above.

The new categories of digital products may not fully capture the role of
digitalisation in physical products because many products with important digital
properties are excluded from the definition of ICT goods used here. 


DIGITALISATION TRANSFORMS METHODS OF ORDERING AND DELIVERY

Digitalisation has also introduced changes to the economy in how goods and
services are ordered and delivered. Digital trade has swept across all
industries. To monitor this development, the supply and use tables for the
digital economy include the transaction type as a new dimension.

The transaction type determines whether a product’s order or delivery was
digital or non-digital. Table 3 presents the forms of ordering methods used in
supply and use tables for the digital economy. The problem here is that data
sources lack coverage and precision, making it impossible to calculate figures
beyond the primary categories A and B.

Table 3. Transaction typeOrdering methodADigitally orderedA_lDirect from a
counterpartyA_llVia a resident digital intermediary platformA_lllVia a
non-resident digital intermediary platformBNot digitally ordered

 

“Digitally ordered” refers to orders for goods and services placed over a
computer network. The payment and delivery methods are irrelevant. This
definition excludes orders by regular email or phone but includes
business-to-business electronic data interchange (EDI) orders, for example. This
is equivalent to the OECD (2011) definition of digital trade.

Our estimate is that in 2018, about 14 per cent of Finland’s economic output was
digitally ordered. This estimate may be low because we could not establish a
division into digital and non-digital service orders for public administration
products, for example. Calculations were produced at the product and industry
levels.

For households, the share of digitally ordered goods and services was about nine
per cent. At the product level, digitally ordered products had the largest share
in product categories related to travel, renting and culture.

The division of delivery methods into the digital and non-digital poses
problems. Only services may be delivered digitally. The digital method of
delivery applies not only to digital products such as cloud services but also
education and gambling, for example.

In theory, highly versatile analysis of product-level data is made possible by
classifying products according to their method of order and delivery. In
practice, the assessment of the delivery method in particular is extremely
difficult due to scarce source data. We therefore refrain from giving an
estimate of delivery methods in this instance.


COMPARING FINLAND’S DIGITAL ECONOMY TO OTHER COUNTRIES

In Finland, the share of the digital economy (7.4%) of the national value added
was relatively similar to other countries which produce these data using nearly
corresponding methods.

The share of value added was eight per cent in the Netherlands, which produced
its own supply-use tables for the digital economy for 2018 according to the same
OECD instructions (CBS, 2021).

In the United States, the digital economy had a share of 9.4 per cent of total
value added in 2018 (BEA, 2022a). It is hardly surprising that the share of
digitalisation was greater in the US given that the world’s largest corporations
operating in digital industries are based in the US.

In Canada and Australia, the share of the digital economy of value added was 5.4
per cent (Statistics Canada, 2021) and 5.6 per cent (ABS, 2022), respectively.
Both used supply and use tables for their calculations.

The role of digital service production is pronounced in Finland, amounting to
about 81 per cent of digital product output. This is very dissimilar to the
Netherlands, for example, where the share of digital services was 53 per cent,
and the share of ICT goods was as high as 28 per cent of digital product output
(CBS, 2021).

In Finland, the share of ICT goods was a meagre seven per cent of our digital
product output. In addition, the demand for digital products in Finland is less
strongly export-driven than in the Netherlands, where exports clearly had the
largest share of digital product demand.

Limited conclusions should be drawn from comparing individual countries,
especially when their calculations are still quite experimental. Furthermore,
different countries use slightly different definitions for their digital economy
calculations. Only the Netherlands has employed exactly the same definitions as
Finland. Regardless of the above, these comparisons do offer a benchmark for
comparing Finland’s digital economy.     

In future, it would be of interest to continue the development of the
methodology for the supply and use tables of Finland’s digital economy and to
build a time series of the digital economy. This is especially pertinent because
the importance of digitalisation has been further emphasised by the increased
teleworking and demand for digital services spurred by the COVID-19 pandemic.

For example, the digital economy of the US has grown much faster than the rest
of its economy in recent years, amounting to 10.3 per cent of the total economic
value added in 2021 (BEA, 2022b). The trend is unlikely to slow down soon in
light of recent developments in artificial intelligence. It would be interesting
to monitor this development regularly in Finland as well.

 

The authors work as Senior Statisticians in Statistics Finland’s national
accounts.

Sources:

ABS
(2022). https://www.abs.gov.au/articles/digital-activity-australian-economy-2020-21/.Ulkoinen
linkki

Ali-Yrkkö, Jyrki; Koski, Heli; Kässi, Otto; Pajarinen, Mika; Valkonen, Tarmo;
Hokkanen, Marja; Hyvönen, Noora; Koivusalo, Elina; Laaksonen, Jarno; Laitinen,
Juha; and Nyström, Enni (1/12/2020). The Size of the Digital Economy in Finland
and Its Impact on Taxation. ETLA Report No 106.

BEA
(2022a). https://www.bea.gov/system/files/2022-11/DigitalEconomy_2005-2021.xlsx.Ulkoinen
linkki

BEA
(2022b). https://www.bea.gov/system/files/2022-11/new-and-revised-statistics-of-the-us-digital-economy-2005-2021.pdf.Ulkoinen
linkki

CBS
(2021). https://www.cbs.nl/-/media/_pdf/2021/49/nl_d3_1_finalreportdigitalsuts.pdf.Ulkoinen
linkki

OECD (2011), Guide to Measuring the Information Society, OECD Publishing, Paris,
2011. Available at: https://dx.doi.org/10.1787/9789264113541-en.Ulkoinen linkki

OECD (2019). Guidelines for Supply-Use Tables for the Digital Economy.
Organisation for Economic Co-operation and Development, Paris

Statistics Canada
(2021). https://www150.statcan.gc.ca/n1/en/daily-quotidien/210420/dq210420a-eng.pdf?st=0PpJ-MPn.Ulkoinen
linkki


AVAINSANAT:

 * digital economy
 * digitalisation
 * supply-use tables
 * digital services
 * digital industries
 * digital trade


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