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  1. Home
  2. Who we are
  3. bp’s impact on the EU27 economies in 2016
  4. Methodology statement and glossary

Methodology statement and glossary

Methodology used by Oxford Economics [i] in calculating BP’s impact on the economies of the EU27 countries

Estimating BP’s direct impact in the EU27 countries

Direct employment data by country are sourced directly from BP and reported without alteration. BP’s data pertains to the company’s employment profile as at December 31st, 2016.

 

We estimate BP’s direct gross value added contribution to GDP in each EU27 country is estimated as follows:

  1. Calculate the sum of compensation of employees, which includes core and retail employees (gross payroll + pensions service cost + termination payments + social security costs)
  2. Divide compensation of employees by the number of employees for which BP’s compensation of employee data applies (core and retail employees).
  3. Multiply compensation per employee for core and retail employees by BP’s total headcount, which includes core employees, retail employees, and contractors.
  4. Multiply total compensation of employees by the ratio of gross value added to compensation of employees for BP Group. [ii]

 

Estimating BP’s supply chain impact in the EU27 countries

This study uses a global input-output model of the EU27 countries and the rest of the world to estimate BP’s contribution to jobs and GDP through spending with suppliers in the EU27 and globally.

 

The model is built on a global input-output table. An input-output table is a snapshot of an economy at a particular point in time. It shows who buys what, and from whom, in an economy. More specifically, it describes the major spending flows, particularly the purchases that each sector makes from every other sector through supply chains, as well as how much of that spending flows out of countries through imports.

 

While a single-country’s input-output model would treat imports as ‘leakage’, and therefore understate BP’s impact on the EU27 economies, this study’s use of a global input-output model captures a fuller picture of BP’s impact. This is particularly important because BP’s operations are global. The model captures spending by BP’s EU27 and other global operations, including imports, on each of the EU27 countries in this study (and Norway, Switzerland, and the United Kingdom). A global input-output model has higher multipliers than a country-specific model because it captures all spending flows, rather than treating some as leakage.

 

How a global input-output model differs from a domestic input-output model

Oxford Economics developed this bespoke global input-output model using input-output tables from the OECD. [iii]

The key data which supports the creation of our input-output model is the so-called ‘A-Matrix’. This matrix describes the pattern of purchases which industries must make to produce an additional unit of output. This table is manipulated using a series of matrix algebra operations, first developed by the Nobel Prize winning economist Wassily Leontief.[iv] These operations ultimately produce what are called ‘multipliers’: for any given amount of spend with BP’s suppliers, these multipliers indicate how much additional economic activity takes place along the supply chain to satisfy BP’s final demand.

 

The total economic activity stimulated by BP’s initial spending with suppliers is ‘output’ or turnover. This is multiplied by country-and industry-specific gross value added to turnover ratios to estimate the contribution that the spending makes to GDP. These ratios are sourced from the OECD. [v]

 

Once gross value added is estimated, we divide by ratios of gross value added per person employed per year by industry in each country, sourced from Eurostat. [vi] The result is the number of jobs BP’s spending supports along the supply chain.

 

Estimates are presented on a gross basis

The results of this study are presented on a gross, rather than net, basis. The difference is whether account is taken of what the resources used up could alternatively have been deployed to do. A gross study ignores the alternative uses, whilst a net study estimates the impact created by the firms in excess of what would have occurred if the resources were put to their alternative use. Taking a net approach is more complex and can be more controversial as it is necessary to estimate what the resources would alternatively be used to do. For that reason, this study follows a gross approach.

 

Footnotes

[i] Oxford Economics was founded in 1981 as a commercial venture with the University of Oxford’s business college to provide economic forecasting and modelling to businesses and financial institutions. It has become one of the world’s foremost independent global advisory firms, providing research, forecasts and analytical tools on 200 countries, 100 industrial sectors and more than 3,000 cities and regions globally. Oxford Economics is a key adviser to corporate, financial and government decision makers and thought leaders. Its worldwide client base now comprises more than 1,000 international organizations, including leading multinational businesses and financial institutions; key government bodies and trade associations; and top universities, consultancies and think tanks.

 

[ii] BP, "Annual Report," 2017

 

[iii] OECD, "OECD Inter-Country Input-Output (ICIO) Tables, edition 2015: Access to data", in OECD [accessed 13 May 2016]. The countries included in the input-output tables are the 34 members of the OECD, the seven EU member states that are not OECD members, and Argentina, Brazil, Brunei Darussalam, Cambodia, China, Colombia, Costa Rica, Hong Kong, Indonesia, India, Malaysia, Philippines, Russia, Saudi Arabia, Singapore, Thailand, Tunisia, Chinese Taipei, Vietnam and South Africa.

 

[iv] Wassily Leontief, "Input and output economics, second edition," 1986

 

[v] OECD, "OECD Inter-Country Input-Output (ICIO) Tables, edition 2015: Access to data", in OECD [accessed 13 May 2016].

 

[vi] Eurostat, "National accounts aggregates by industry," 2017

 

Glossary

  • BP, unless otherwise stated, includes BP p.l.c. itself and its subsidiaries.
  • Capital spending is spending on goods that are not fully used up in the year of purchase.
  • Currency values, unless otherwise stated, are in 2016 prices and exchange rates.
  • Direct impacts are jobs and gross value added generated by BP’s own operations.
  • EU27 is the 28 European Union countries less the United Kingdom.
  • Employment is the number of people who are employed or self-employed. In this study, it is measured on a headcount basis for comparison with national statistics in each country.
  • Gross value added (GVA) is the difference between the turnover of a firm or industry and the bought-in costs needed to create that turnover. Equivalently, gross value added is the combined value of compensation of employees, company profits, and taxes on production. Summed up for all firms in an economy, gross value added is equal to GDP (with minor adjustments for taxes and subsidies).
  • Gross domestic product (GDP) is the sum of gross value added across every firm and industry in the economy, after minor adjustments for taxes and subsidies. GDP is the most commonly used metric to judge the rate at which economies are growing, and is used when references are made to economies entering or exiting a recession.
  • Indirect impacts, or supply chain impacts, are jobs and gross value added supported by BP’s capital and non-capital spending on goods and services.
  • Non-capital spending is spending on goods and services that are used up in the year of purchase.