Full text of Economic Quarterly (Federal Reserve Bank of Richmond) : June 1972, Vol. 58 , No. 6

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FEDERAL RESERVE BANK OF RICHMOND

MONTH LY
REVIEW
Domestic International Sales Corporations
The World Trade Matrix
Virginia Manufacturing




^ncourac/in^

Z/. S. Exports

.

.

.

DOMESTIC INTERNATIONAL SALES CORPORATIONS
THE NEED FOR EXPORT EXPANSION
During the past several years U. S. exports have
grown rapidly but not as rapidly as the exports of
its major trading partners and, in particular, not as
rapidly as U. S. imports. The traditionally large
export surplus of the United States, which is neces­
sary to finance foreign investment and other capital
outflows, became progressively smaller in the latter
1960’s. The export surplus disappeared entirely in
1971, as this country experienced its first annual
trade deficit since 1935 by one measure and the first
since 1888 by another.
Paralleling the decline in the U. S. trade position,
and perhaps contributing to some of it, has been a
continued rise in U. S. overseas production. U. S.
firms have increasingly supplied foreign markets
through foreign-based subsidiaries. Foreign sales of
overseas manufacturing affiliates of U. S. companies
in 1970 were over twice the amount of direct exports
of manufactured goods from the United States, and
have grown about twice as fast as direct exports over
the past decade.
Some Export Problems U. S. exporters have
operated under several handicaps in recent years.
One of the most important has been domestic price
and wage inflation, which, in addition to attracting
increasing imports, has eroded the competitive posi­
tion of som e im portant U. S. exports in w orld
markets. The U. S. trade surplus reached a peak of
$6.8 billion in 1964 and then began to decline as in­
flationary pressures intensified. W hile demand in­
flation was brought under control in m id-1969, costpush pressures continued to undermine the com ­
petitive position of U. S. exporters and domestic
producers confronted with a challenge from imports.
Reinforcing these pressures were the problems caused
by having the cyclical positions of the United States
and foreign countries out of phase. Of course, the
realignment of exchange rates in 1971 was intended
to compensate partially for this.
United States exporters have traditionally been
able to compete effectively in world markets, despite
relatively high U. S. wage levels, largely because
productivity gains held down unit labor costs. In

2




MO N TH LY

the early 1960's, labor costs per unit of output
actually declined in the United States, while rising
substantially in other major trading nations. From
1965 through 1970, however, unit labor costs in the
United States rose more than 2 0% , which was above
the average for this country’s trading partners. This
rise meant that higher wages were translated into
higher, and often noncompetitive, export prices. The
relative U. S. cost position improved in 1971, how­
ever, as inflation in Western Europe and Japan
surged ahead of that in the United States, although
there has not been sufficient time for this improve­
ment to show up in the trade figures. The devalua­
tion of the dollar should prove to be a more important
immediate factor improving the relative U. S. cost
position.
In addition to the problems of domestic inflation,
U. S. exports have been denied full access to foreign
markets by certain discriminatory foreign practices.
The European Community’s Common Agricultural
Policy, for example, has limited U. S. agricultural
exports to that market. The growing use of pre­
ferential trading arrangements by the EC and other
trading groups has also discriminated against U. S.
exports. So have the many quantitative import re­
strictions and other types of nontariff barriers to
trade that have become more prominent on the world
trading scene as tariff barriers have been lowered.
These nontariff barriers to trade include adminis­
trative regulations, measurement standards, health
and safety regulations, and other restrictions that
have little apparent relation to international trade
but have been instrumental in distorting world trade
patterns. O f course, other countries have no mono­
poly on barriers to trade. Foreign exports have also
been denied access to the U. S. market as a result
of discriminatory U. S. practices. Most prominent,
recently, have been extensive U. S. import restric­
tions, which include “ voluntary” foreign export re­
strictions on important traded items. There may, in
fact, be some question as to whose barriers are more
restrictive.
In addition to erecting barriers to imports, many
nations have also sought a competitive advantage over
U. S. exports in third countries through vigorous

REVIEW, JUNE

1972

export promotion and subsidy policies. Many foreign
governments, as well as foreign businessmen, have
paid more attention to export expansion than the
United States, because their international trade
sectors are larger relative to their total economies.
Even though the United States is the world’s largest
trading nation in absolute terms, it exports a smaller
share of its production and imports a smaller share
of its consumption than any of its major trading
partners. The United States exports only about 4 %
of its G N P, compared to an average of 15% for the
rest of the world. Since many nations rely more
heavily on their international trade, they have over
the years geared many of their policies to favor ex ­
ports. In addition to substantial export promotion
programs, exports receive special treatment in foreign
antitrust, labor, and transportation policies.
Foreign efforts to encourage exports are most
prominent in the areas of export financing and
favorable tax treatment. Countries that rely heavily
on indirect taxes, such as sales taxes, excise taxes,
or value added taxes, are able to offer their exporters
more favorable tax treatment under the rules of Gen­
eral Agreement on Tariffs and Trade than countries
that rely more on direct taxes, such as the income
tax. U. S. exporters, for example, have to pay the
full income tax rate on their export profits, while
many European exporters receive rebates on the
value added tax paid on exported goods.
M eeting the C om petition E ven though its ef­
forts have lagged far behind foreign practices, the
United States has taken some steps to encourage ex­
ports. The Department of Agriculture promotes
U. S. agricultural exports in various ways. The D e­
partment of Commerce and, to a more limited extent,
other government agencies have various programs
to encourage exports of manufactured goods.
Its
promotion efforts include numerous overseas com ­
mercial exhibits and trade missions abroad and
marketing assistance and information to U. S. ex­
porters and potential exporters.
The United States has also attempted to provide
export financing on terms comparable to the favor­
able terms available to foreign exporters. The pri­
mary purpose of the Export-Import Bank is to en­
courage U. S. exports through its export financing
programs. Its programs are intended to supplement
and encourage private export financing rather than
to compete with private sources.

The Exim Bank

guarantees and insures export credits extended by

sources. Under the auspices of the Export-Im port
Bank, the Foreign Credit Insurance Association— an
association of private insurance companies— also in­
sures export credits against commercial credit risks.
The Department of Defense guarantees loans to
foreign buyers of certain U. S. military goods. The
Commodity Credit Corporation, an agency of the D e­
partment of Agriculture, conducts several export fi­
nancing programs as a by-product of its function of
supporting U. S. farm prices and disposing of U. S.
agricultural surpluses abroad.
In an effort to facilitate export financing further,
Congress, in the Export Expansion Finance A ct of
1971, removed Export-Im port Bank disbursements
from federal budget expenditures and expanded its
lending capacity by about one-half. Increased bor­
rowing and lending authority permitted expansion of
the Export-Im port Bank’s discount program into
short-term as well as medium-term export paper.
Congress also removed export credits from the
foreign lending ceilings applicable to banks and other
financial institutions under the Voluntary Foreign
Credit Restraint Program. Export credits guaranteed
or participated in by the Export-Im port Bank, in­
sured by the Foreign Credit Insurance Association,
or guaranteed by the Department of Defense were
already exempt under the Voluntary Foreign Credit
Restraint Program.
W hile the United States has provided favorable
export financing, its export promotion efforts have
fallen short of those of its main competitors. The
United States’ major trading partners spend roughly
twice as much on export promotion in proportion to
their exports as does the United States.1 Moreover,
many countries’ promotional efforts have been only
one part of an integrated program of export ex­
pansion. The United States has relied more on its
technological superiority to remain competitive in
world markets. W hile this has sufficed in the past,
recent experience suggests that it may not be suf­
ficient in the future. In today’s highly integrated
world of multinational corporations, computerization,
and rapid communication and transportation, techno­
logical advantages are short-lived. New realities
have forced a reassessment of the U. S. competitive
position and its approach to world competition in the
future. W ith such considerations in mind, Congress
included in the Revenue A ct of 1971 an important
program for export expansion. It provided for the
establishment of Domestic International Sales Cor­
porations, or DISCs.

banks and other financial institutions, discounts their
export paper, joins in cooperative financial arrange­
ments, and extends direct credits out of its own re­



1 Harold B. Scott, “ Export Expansion for the Seventies . . . and
Beyond,” United States International Economic Policy in an Inter­
dependent World (Washington, D. C.: Government Printing Office,
July 1971), p. 556.

FEDERAL RESERVE B A N K OF R IC H M O N D

3

THE DISC PROGRAM
The purpose of the D IS C program is to encourage
U. S. exports by providing tax incentives for e x ­
porters utilizing D IS C subsidiaries.
Specifically,
federal income tax will be deferred on the export
profits of a D IS C as long as these profits are re­
tained and used in export-related activities.
The tax advantages offered by the D IS C program
are designed not only to increase the profitability of
foreign sales relative to domestic sales, but also to
encourage U. S. firms to produce domestically for
export, instead of locating their manufacturing opera­
tions abroad. By exporting through a D IS C sub­
sidiary, U. S. exporters will receive tax treatment
that compares favorably to the treatment afforded
foreign subsidiaries of U. S. firms. The ultimate
objective is not only to restore a strong international
trade and payments position but also to stimulate the
domestic economy by expanding output and increas­
ing employment in the export sector.
A D IS C ’s operations are limited to export-related
activities. Such a corporation may purchase export
goods from its shareholders (parent firm ) or other
U. S. manufacturers and resell them abroad. O r a
D IS C may export for its suppliers as an agent on
a commission basis. It may also lease or sublease
U. S. property to foreigners. Although a D IS C
may not manufacture its own products for export, it
may perform limited processing, packaging, or as­
sembly operations on the products it sells. It may
also render services in connection with its export
transactions and perform a limited number of other
services for foreign concerns.
Tax Advantages of a DISC A D IS C itself is not
subject to federal income tax on any of its profits.
The tax is imposed on the shareholders, or parent
firms, when the profits are distributed to them. The
D IS C shareholders are treated as having received
half of the D IS C ’s earnings currently, whether they
are actually distributed or not.
This half of the
profit is deemed to be attributable to the manu­
facture of the product rather than its export. The
remaining half, considered the export profits, may
be retained by the D IS C with no shareholder tax
liability as long as those earnings are reinvested in
its export business, invested in certain Export-Im port Bank obligations, or loaned to U. S. producers
to finance export-related assets. It is important to
note that through these “ producer’s loans” the earn­
ings of the D ISC may be made available to its parent
company or other export producers without sacri­
ficing their tax-deferred status. If a foreign sub­
sidiary made such a loan to its U. S. parent com ­

4




M O N TH LY

pany, the loan would be taxed as a dividend. The
shareholders of the D ISC are taxed on the formerly
deferred earnings when these earnings are dis­
tributed as dividends or when the corporation loses
its status as a DISC.
Since half of the total profit of a D IS C is eligible
for tax deferral, an important question is how much
of the total combined profits of the D IS C and its
related producer or supplier can be allocated to the
DISC. Special tax treatment for the profits of a
D IS C would be meaningless if those profits were
severely limited by restrictive rules governing the
prices charged by the parent to the DISC. The gen­
eral rule on pricing between a parent company and
its subsidiary is an “ arm’s length” rule that requires
that sales or transfers be made at the price that the
parent would have charged an outside party for the
product. The D IS C program, however, includes a
more favorable special pricing rule that permits a
D ISC to purchase goods from its parent at a price
lower than required by the “ arm’s length” rule and
thus claim a larger share of the combined profit for
itself. Under the special rule, the transfer price can
be low enough to enable the D IS C to earn the
greater of 4 % of its sales or 50% of the combined
income attributable to the manufacture and sale of
the products through the D ISC . The D IS C would
also be permitted to earn an additional profit equal
to 10% of its export promotion expenses.
This
favorable pricing rule permits the D IS C to claim
for tax deferral purposes a portion of the earnings
that would have been considered domestic manu­
facturing profits subject to tax if the products had
been sold abroad through a foreign sales subsidiary
or marketed domestically.
Other Tax Breaks
O rdinarily, a loan b y a
foreign subsidiary to a domestic parent is treated,
for tax purposes, as a dividend subject to tax. But
a D IS C may lend its retained earnings to the parent
company or to any other domestic export producer
without forfeiting the tax-deferred status of those
earnings. An important qualification, however, is
that a D IS C ’s “ producer’s loans” must be used to
finance the borrower’s export assets and are thus
limited by the size of the borrower’s export business.
In calculating the amount of loans permissible, ex­
port assets are assumed to be the same percentage of
total assets as the percentage of the borrower’s export
sales to total sales.

If the loans of a D IS C to its

parent company exceed the parent’s export assets,
the D ISC must distribute that amount of its earn­
ings as a taxable dividend.

This limitation on the

use of tax-deferred earnings by the parent or other

REVIEW, JUNE

1972

export manufacturer is fairly lenient. It is not
likely to become restrictive as long as the recipient’s
export activities are sizable in relation to the lend­
ing D IS C ’s profits.
Unlike foreign subsidiaries of domestic companies,
a D IS C does not have to pay foreign taxes in order
to receive its U. S. tax deferral. W hile U. S. taxes
on the earnings of a foreign subsidiary are deferred
until those earnings are remitted to the U. S. parent
corporation, the subsidiary has to pay current foreign
tax. Since foreign income taxes paid may be credited
against the U. S. tax liability, the deferral is of sig­
nificant benefit only when the U. S. corporate tax
rate is higher than the foreign rate. But even then
the deferral applies only to any excess of the ulti­
mate U. S. tax liability over the foreign taxes paid.
This differential is usually a small portion of the
total tax liability to both governments. A D ISC, on
the other hand, does not have to pay a foreign tax
to have its domestic taxes deferred.
Legal Requirements A D IS C may be incorporated
under the laws of any state or the District of Co­
lumbia. It must have a minimum of $2,500 of capital
and only one class of stock. All shareholders must
consent to treatment of the corporation as a DISC.
The D IS C must maintain a separate set of records
and bank accounts, but it may otherwise operate as
a “ shell corporation” without its own premises or
employees. The officers and employees of the parent
or shareholder companies are expected to conduct
businss on behalf of their D IS C subsidiaries.
A D IS C may have any number of shareholders
and may handle the export sales, as a principal or on
a commission basis, of any number of producers
whether they are shareholders or not. It is antici­
pated that many small producers will export through
jointly owned DISCs and that many large export
producers will export through wholly owned D ISC
subsidiaries.
Many existing corporations engaged
primarily in export sales may qualify for treatment
as a D IS C for tax purposes.
In order to qualify as a D ISC, a corporation must
derive at least 95% of its revenues from export sales
and export-related investments, and 95% of its as­
sets must be “ export related.”
If a firm fails to
meet these two crucial tests it can retain its status
as a D IS C by distributing its unqualified earnings or
assets to its shareholders as a taxable dividend.

A s indicated above, a corporation must derive at
least 95% of its gross receipts from exports or e x ­
port-related activities to qualify as a DISC. Quali­
fied receipts include receipts from the sale or leasing
of export goods and the performance of related
services, dividends from investments in qualified
foreign sales subsidiaries, and interest income on any
qualified export asset, such as accounts receivable
from export sales, producer’s loans, and ExportImport Bank obligations. Qualified receipts also in­
clude receipts from performing architectural and
engineering services on foreign construction projects
and from export management services provided for
unrelated DISCs.
In addition to the gross receipts requirement, 95%
of the total assets of a corporation must also be ex­
port related for it to qualify as a DISC. Qualified
export assets include the D IS C ’s inventory of ex­
port goods and goods held for lease abroad, business
assets used in connection with the D IS C ’s export
business, trade receivables, necessary working capital,
producer’s loans, Export-Im port Bank obligations,
and investments in foreign sales subsidiaries and
other related foreign export corporations.
Impact of DISC
T h e Treasury has estimated
that, when the D ISC program becomes fully ef­
fective in two or three years, it will raise U. S. ex­
ports by about $1.5 billion annually and create about
800,000 new jobs. The cost in terms of foregone
tax revenue is estimated to be approximately $600
million.
A s these estimates suggest, the Treasury is count­
ing on the tax incentives of the D IS C program to
encourage exporters and potential exporters to under­
take significant efforts to expand their export markets
and to supply those markets to a greater extent from
U. S. plants. The Treasury recognizes that foreign
demand for U. S. exports is probably too insensitive
to price changes for the projected expansion of ex­
ports to be achieved solely through price reductions
made possible by tax savings. This estimate is con­
sistent with most empirical estimates of demand
elasticities for U. S. exports. Supplementary non­
price competitive measures will probably be necessary
in the form of increased promotion efforts, better fi­
nancial terms, better servicing facilities, delivery
schedules, and quality control.
In the Congressional Hearings of the Revenue

If a cor­

Act of 1971, critics of the D IS C proposal emphasized

poration ceases to be a D ISC for any reason, its

what they considered to be its high cost relative to

Otherwise, it loses its status as a DISC.

retained earnings become taxable to its shareholders

expected benefits.

over the same number of years as the D IS C has been

higher revenue loss than official estimates and a

in existence, or a maximum of 10 years.

smaller stimulus to exports.




FEDERAL RESERVE B A N K OF R IC H M O N D

Several witnesses estimated a
In addition to the tax

5

costs of the program, several critics objected 011
grounds of tax equity. They contended that the pro­
gram could virtually exempt an entire sector of the
economy— the export sector— from income taxation.
They also argued that the largest U. S. corporations
would be the program’s chief beneficiaries since these
firms dominate exporting. T o eliminate what some
people considered to be a windfall tax benefit, an
effort was made to limit the tax advantages of the
D IS C program to incremental exports over some
base period level, so that export increases would be
singled out for preferred treatment. The Treasury
maintained that the D ISC program does not favor
large corporations since they are already receiving
the tax benefits of foreign subsidiaries and foreign
tax credits. The more likely beneficiaries, according
to the Treasury, are the smaller and medium-sized
firms whose earnings are not already being shielded
from U. S. taxes. The Treasury argued that D ISC
benefits should not be limited to incremental exports
since that approach would penalize firms for a good
past performance in exporting. It also argued that
many firms have recently experienced declining ex­
port sales, and an incremental approach would do
nothing to arrest this decline. It is just as important
to maintain export levels against erosion as it is to
raise export levels.
Critics of the D IS C proposal maintained that the
special tax treatment of a D ISC is tantamount to a
permanent tax exemption rather than a deferral,
since the D IS C may make its retained earnings
available to its parent company without losing their
deferred status.
Partly for this reason, critics
questioned the legality of D ISC under the General
Agreement on Tariffs and Trade rules and antici­
pated foreign emulation or other forms of retaliation.
Proponents of D ISC countered that D ISC , in most
cases, merely goes part way toward giving U. S.
exports as favorable a treatment as foreign exports
have received for some time.

Digitized for
6 FRASER


M O N TH LY

Conclusion The D IS C program is just gettin g
under way, and at this point estimates of its impact
on exports and on tax revenues are necessarily
tentative. Evaluation of its effect will have to await
at least two or three years of operation. Newspaper
reports indicate that the Treasury is receiving many
inquiries about the program and that many DISCs
are being formed. Anyone interested in the legal
details of the program or anyone contemplating
forming a D IS C subsidiary should consult the
Treasury booklet, D IS C , Domestic International
Sales Corporation, A Handbook for Exporters.
Robert D. M cTeer, Jr., Sharon M. Haley

Bibliography
Barovick, Richard. “ Treasury Fights for D ISC in Pro­
posals to Ease Tax Burdens on Overseas Business.”
Business Abroad (M arch 1971), pp. 9-10, p. 16.
Carter, Richard D. “ W h a t is a D IS C ?” Economic Com­
m entary, Federal Reserve Bank o f Cleveland (Febru­
ary 14, 19 72 ).
Commission on International Trade and Investment
Policy.
U. S. International Economic Policy in an
Interdependent W orld. W ashington, D. C .: Govern­
ment Printing Office, July 1971.
D IS C , D omestic International Sales Corporation, A
Handbook fo r E xp orters. W ashington, D. C .:
The
Department o f the Treasury, January 1972.
[F or
sale by the Superintendent o f Documents, U . S. Gov­
ernment Printing Office, W ashington, D . C. 20402
— Price 40 cents, Stock Number 4800-0194.]
Seghers, Paul D. “ D -I-S -C .”
The Conference Board
Record (A u gu st 1 9 70 ), pp. 39-42.
Seghers, Paul D.
“ D ISC Could Mean More Export
P rofits.” Business Abroad (July 1 9 70 ), pp. 29-31.
The President’s N ew Economic Program , Hearings
before the Joint Economic Committee, Congress of
the United States, Ninety-second Congress, Parts 1-4.
The Revenue A c t o f 1971, Hearings before the Com­
mittee on Finance, United States Senate, Ninetysecond Congress, Parts 1 and 2.

REVIEW, JUNE

1972

THE WORLD TRADE MATRIX

In analyzing the flow of trade among nations,
economists sometimes find it convenient to employ a
world trade matrix. This matrix, which depicts the
interrelated network of world commerce, provides
information useful in examining the effects of tariff
changes, currency devaluations, and the creation of
regional trade blocs on the pattern or direction of
trade.
Matrix presentation of world export-import data
is of relatively recent origin. The use of world trade
tables, although anticipated in a famous 1942 League
of Nations study, The Network of W orld Trade, did
not become widespread until after W orld W ar II,
when economists began to require increasing amounts
of export-import data, both for forecasting purposes
and for the empirical testing of theoretical trade
models, and when the development of high-speed
computers made the analysis of large volumes of data
feasible. Since then, such matrices have been the
conventional means for organizing trade data. O f­
ficial publications of the United Nations ( U N ), the

Figure 1

TRADE MATRIX FOR A HYPOTHETICAL
THREE-COUNTRY WORLD




International Monetary Fund ( I M F ), the Organiza­
tion for Economic Cooperation and Development
(O E C D ), the General Agreement on Tariffs and
Trade ( G A T T ) , and other international economic
organizations custom arily present trade data in
matrix form. The purpose of this article is to fa­
miliarize Monthly R eview readers with matrices of
this type and to indicate certain significant trade pat­
terns revealed in the 1970 world trade matrix.
The Network of Trade in a Hypothetical ThreeCountry World Figure 1 show s a m atrix for a
hypothetical three-country world. All the countries
are listed both as exporters vertically along the lefthand side of the matrix and as importers horizontally
along the top of the matrix. Each row shows the ex­
ports of the particular country listed at the left, and
each column shows the imports of the country
designated at the top. The numbers appearing in
the compartments of the matrix are the dollar values
of exports from the country listed at the left de­
livered as imports to the country designated at the
top. Each country is treated as a trading entity;
intra-country trade is ignored. Thus, the compart­
ments along the diagonal are left blank to indicate
that no nation exports to itself.
In the example given, trade is in multilateral, but
not bilateral, balance. Although each country’s total
exports to all the other countries equal its total im­
ports from them, no such equality is exhibited in any
country’s separate trade balance with a single trading
partner. In a system of multilateral trade, the de­
ficits that a country runs with some of its trading
partners are offset by surpluses with other partners.
For example, Country A ’s $3 trade deficit with
Country C is offset by A ’s $3 surplus with Country
B. Similarly, B ’s deficit with A is balanced by B ’s
trade surplus writh C, and, finally, C’s deficit with B
just equals C’s surplus with A , thereby clearing the
system. In general, a multilaterally-balanced, bi­
lateral ly-im balanced w orld trade pattern is more
efficient than one constrained by the require­
ment o f strict bilateral balancing.
In lim iting
trade between partners to transactions that will just
balance, the requirement of bilateral balancing tends
to restrict the volume of trade, thereby inhibiting

FEDERAL RESERVE B AN K OF R IC H M O N D

7

international specialization and division of labor.
A s shown in the lower right compartment of the
matrix, exports must equal imports for the world as
a whole. The world export-import equality would
exist purely as a matter of accounting even in the
absence of multilateral equilibrium, i.e., even if no
single country’s total trade balance exhibited such
an equality. This global equality between exports
and imports necessarily results if all countries use the
same basis for valuation of imports as they use in
accounting for exports, e.g., the value of the com ­
modities exclusive of shipping cost from the export­
ing to the importing country. In such a case the
value of the traded goods appearing on importers’
foreign trade accounts must be the same as the value
recorded in exporters’ external accounts.
Actual World Trade Network Figure 2 shows
the 1970 world trade matrix prepared by the econo­
mics staff of the United Nations. This version differs
from the hypothetical w orld matrix in three re­
spects. First, instead of a complete listing of all
nations as exporters and importers, only the major
trading countries are listed, with the rest aggregated
into regions or trading blocs. Notice, however, that
trade among the nations comprising a particular bloc
or region is shown. Thus, for example, the measured
volume of intraregional and intrabloc trade appears
in the compartments marking the respective intersec­
tions of the “ Latin America” and “ E E C ” rows and
columns. Intranational, i.e., purely domestic trade,
is, of course, not reported; no data appear in the
com partm ents m arking the intersection of the
“ U nited States” or “ Canada” row and colum n.
Second, the condition of all-country export-import
balance is absent. In contrast to Figure l ’s hypo­
thetical case of multilateral balance, Figure 2 indi­
cates that, in 1970, some countries and regions—
notably the U. S., Canada, EEC, and Japan— were
net exporters, while others— notably E F T A , Other
Europe, and Other Asia— were net importers.
The third difference between the two matrices is
that in the U. N .’s version the reported export
figures are not necessarily identical to the value of
imports received, as recorded in the trade statistics
of importing countries, i.e., “ exports to” is not
synonomous with “ imports of.” In the real world,
as opposed to the hypothetical, exports and im­
ports are not defined consistently and, therefore,
are not identical. Whereas exports are universaly
valued at their cost before shipment to the im ­

importing country. Because exports and imports are
valued differently, the world total of exports does
not equal the world total of imports. The latter ex­
ceeds the former by the amount of shipping and in­
surance charges. For consistency, the U N is con­
strained to report only the value of exports by desti­
nation instead of the import figure shown in a
nation’s balance of payments statistics.
Trade Patterns T o exam ine the pattern of trade
of a particular country or region in 1970, one has
only to isolate the row and column of Figure 2 cor­
responding to that country or region. For example,
the first row of the matrix reveals that Canada and
the European Economic Community (E E C ) were
the most important foreign markets for U. S. goods,
purchasing 20.7% and 19.6% respectively, of total
U. S. exports. The European Free Trade Associa­
tion ( E F T A ) and Japan accounted for another 21% .
These four areas, which together purchased 61.2%
of our exports, were also our major suppliers, pro­
viding 70.2% of all goods exported to this country
in 1970. The first column of the matrix indicates
that Canada accounted for 28.1% of the foreign ex­
ports sent to the U. S. The EEC, Japan, and E F T A
followed with shares of 17% , 15.5%, and 9.6% ,
respectively.
T w o aspects of the world trade pattern are es­
pecially noteworthy. The first is the prominence of
the U. S. in Canada’s foreign trade picture. Almost
two-thirds of Canada’s exports go to the U. S. which,
in turn, is the source of more than 70% of the goods
exported to Canada.
Propinquity, similarity of
markets, and the relative lack of trade barriers be­
tween Canada and the U. S. account for the latter’s
preponderance in Canadian export-import trade.
A second point of interest is the remarkably high
proportion of total E E C trade carried on within the
EEC. The nations comprising the European com ­
mon market trade as much with each other as they
do with the entire rest of the world. By contrast,
intraunion trade in the E F T A , the other major
European trade bloc, was less than 25% of its total
trade. In 1970 the nations comprising the E F T A
traded more with the E E C than with themselves.
In fact, trade with the E E C accounted for the largest
proportion of total E F T A trade, suggesting that
E F T A nations may find it advantageous either to
join the E E C (as Great Britain, Norway, Ireland,
and Denmark currently are in the process of doing)
or to establish closer trading arrangements with the

porter, im ports are valued in many countries at

EEC.

this cost plus the freight and insurance costs involved

union proportion of its total trade is likely to rise

in transporting the goods from the exporting to the

even higher.

8




M O N TH LY

REVIEW, JUNE

As the common market expands, the intra­

1972

Trade Flows Among Developed, Developing, and
Planned Economies In som e cases it m ay be
useful to impose an even more severe degree of aggregation on the world trade data than that shown
in Figure 2. Further consolidation may be necessary
to bring into sharp focus interesting trade patterns
obscured in larger matrices such as Figure 2. In the

matrix of Figure 3, all of the countries of the world
are classified into three mutually exclusive categories— developed market econom ies, d eveloping
market economies, and centrally planned or socialistic
economies.
According to Figure 3, developed countries dominate world trade, accounting for almost three-fourths

Figure 2

WORLD EXPORTS BY ORIGIN AND DESTINATION, 1970

N o te :

B o ld -fa c e fig u re s a re F.O.B. va lu e s in m illio n s o f U. S. d o lla rs .
r ig h t c o rn e r is p erce n t o f co lu m n to ta l.

Figure in u p p e r le ft c o rn e r is p erce n t o f ro w to ta l; fig u r e in lo w e r

1M a y n o t e q u a l th e sum o f th e co rre sp o n d in g ro w a n d co lu m n fig u re s because o f a p p r o x im a tio n e rro r a n d s ta tis tic a l d is c re p a n c y .
Source:

U n ite d

N a tio n s , S ta tis tic a l O ffic e , M o n th ly B u lle tin o f S ta tistics , June 1971, Special Ta b le B, pp. x ii- x v .




FEDERAL RESERVE B A N K OF R IC H M O N D

9

Figure 3

TRADE AM O N G DEVELOPED MARKET,
DEVELOPING MARKET, AND CENTRALLY PLANNED
ECONOMIES, 1970

N o te :

B o ld -fa ce fig u re s a re F.O.B. va lu e s in m illio n s o f U. S.
d o lla rs .
Figure in u p p e r le ft co rne r is perce n t o f ro w
to ta l; fig u r e in lo w e r r ig h t co rne r is perce n t o f colum n
to ta l.

1 M a y n o t e q u a l th e sum o f the c o rre sp o n d in g ro w a n d colum n
fig u re s because o f a p p r o x im a tio n e rro r a n d sta tis tic a l d iscre p a n c y .
Source:

U nite d N a tio n s , S ta tis tic a l O ffic e , M o n th ly B u lle tin
S tatistics, June 1971, Special Table B, p p . x ii- x v .

of

of the total. Less developed countries, on the other
hand, account for less than one-fifth. Several factors
are responsible for the relatively minor role played
by less developed countries in the world economy.
Since the 1930’s there has been a long-term tendency
for the demand for primary products, the chief ex­
ports of underdeveloped areas, to shrink in relation to
the demand for manufactured goods, the chief ex­
ports of developed economies. Part of this relative
decline may be attributable to the relatively low in­
come elasticity of consumer demand for agricultural
commodities.
Consumer spending for the latter
tends to be less responsive to rises in income than
does spending for manufactured products. Then, too,
production in the developed countries has become
less raw material-using than formerly, thereby con­
tributing to the reduction in the relative demand for
primary products. The development of synthetic
substitutes, the realization of economies in the use
of raw materials, and the increasing importance of
complex, sophisticated finished products requiring a
larger proportion of processing costs to materials
costs than do simple products, all have tended to re­
duce the resource content per unit of output of manu­
factured products.
In addition, the shift of the
product-mix in developed countries toward services,
a non raw material-intensive form of output, has
further reduced the demand for primary products.
Figure 3 also indicates that developed countries
trade almost four times as much among themselves

10


M O N TH LY

as they do with less developed countries. Less de­
veloped countries, however, trade relatively little with
each other but relatively much with developed
countries. In 1970, trade of less developed countries
accounted for only 3.6% of total world trade, whereas
trade among developed countries amounted to 55%
of world trade. Approximately three-fourths of the
trade of less developed countries was with developed
countries, but less than one-fifth of the developed
countries’ trade was with the poorer economies.
W hy do developed countries do most of their
trading with each other? Many explanations, none
completely satisfactory, have been offered. One of
the more plausible explanations is that only these
nations possess endowments of capital, highly skilled
labor, and advanced technical knowledge in sufficient
abundance to supply the sophisticated products that
other rich nations want. Moreover, only these na­
tions, having similar per capita incomes and, there­
fore, similar demand patterns, can absorb the types
of products other affluent nations produce.
A s is the case with developed market economies,
the major part of the trade of socialist nations is
with other socialist nations. More than three-fifths
of communist bloc trade is internal. About twothirds of the remainder of communist bloc trade is
with developed countries. Although communist bloc
trade with developed economies is roughly twice that
with underdeveloped market economies this situa­
tion does not necessarily conflict with the widelyheld belief that communist-bloc nations use trade
primarily to solicit allies in the less developed part
of the world. Rather, the predominant share of the
W est in the external trade of the socialist bloc may
indicate that the latter has found trade to be ad­
vantageous on economic as well as political grounds.
Still, East-West trade is but a minute proportion
of both total world and free world trade, suggesting
a potential for future expansion. The possibility of
expanded trade between communist and developed
market economies has been much discussed of late,
and many observers feel that more liberalized trade
relations would be beneficial to both sides.
Summary A w orld trade m atrix sum marizes, in
tabular form, the interrelated structure of interna­
tional and interregional commerce. This article has
discussed certain features of such matrices and has
examined some of the major patterns revealed in the
1970 world trade matrix.

The main conclusion of

the article is that trade of developed market econo­
mies dominates total world trade and largely de­
termines the trade of less developed economies.

REVIEW, JUNE

Thomas M. Humphrey
1972

f

VIRGINIA MANUFACTURING:
A Profile of Growth

The story of Virginia manufacturing since the
early 1950’s is one of constant growth and diversifica­
tion. Between 1958 and 1967, Virginia’s manufactur­
ing work force grew at an annual rate of 3.4% , com ­
pared with an annual average rate of 2 % for the
nation as a whole. Value-added in manufacturing in
Virginia amounted to $4.1 billion, a 92% increase
over 1958. From 1958 to 1967, Virginia’s manu­
facturing establishments increased their expenditures
for plant and equipment by 145%, reaching a level
of $347 million in 1967. Nondurable goods industries
accounted for 72% of the 1967 total.

The chemical,

food, and paper industries have consistently led V ir-

C h a rt 1

MANUFACTURING EMPLOYMENT IN
VIRGINIA
Thousands

Source:

C o m m o n w e a lth o f V ir g in ia , D ivision o f In ­
d u s tria l D e ve lo pm e n t, M a n u fa c tu rin g in V ir ­
g in ia .




ginia manufacturers in expenditures for new plant
and equipment.

MANUFACTURING EMPLOYMENT AND WAGES
Manufacturing employment in Virginia increased
by 34.7% from 1960 to 1969. This was in line with
the South Atlantic region’s growth of 34% , and was
substantially above the national gain of 20.1% . In
1970, manufacturing in Virginia employed 365,000
workers and provided jobs for 20% of the civilian
labor force. The percentage of the nation’s manu­
facturing workers employed in Virginia has grown
slowly but steadily for two decades. In 1950, 1.5%
of manufacturing employees in the United States
were employed in Virginia. By 1958, 1.6% of the
nation’s manufacturing work force was located in
Virginia, and by 1967 the comparable figure was
1.9%.
In percentage terms this appears to be a
very small increase, but the 20% growth in V ir­
ginia’s share of the nation's manufacturing workers
represents 66,000 new manufacturing jobs and an in­
crease of $350 million in the state’s manufacturing
payrolls.
Am ong those manufacturers that have
grown the fastest in terms of total employment are
furniture, machinery, and transportation and elec­
trical equipment industries.
Manufacturing wage rates in Virginia, as in the
nation and the Southeast, have risen steadily since
1950. From 1950 to 1960, average rates climbed
from $1.18 per hour to $1.77 per hour. By 1970,
the average hourly earnings for manufacturing em­
ployees in Virginia had increased to $2.73 per hour.
Employees in durables industries benefited from these
wage increases more than nondurable industry work­
ers. Between 1960 and 1970, wage rates in Virginia
were consistently 80% of national rates and were
in line with rates in other southeastern states.
During the 1960’s, wage rates were slightly higher
in Maryland and Florida than in Virginia, but the
hourly earnings of production workers on manu­
facturing payrolls in Virginia were significantly
above those of North Carolina, South Carolina, or
Georgia workers during the 1960’s, as shown in
Chart 2.

FEDERAL RESERVE B AN K OF R IC HM O ND

11

GEOGRAPHICAL DISTRIBUTION

countryside, away from the larger urban centers.
Since 1966, two-thirds of new manufacturing jobs
have been located in nonmetropolitan areas. This
has provided the state with a manufacturing base

Manufacturing employment in the state is widely
distributed geographically, with all Virginia cities
and counties sharing in the total. In 1969, more
than one-third of the state’s manufacturing employ­
ment was accounted for by five major metropolitan
areas:
Richmond, Norfolk-Portsmouth, Newport
News-Hampton, Lynchburg, and Roanoke. The
heaviest concentration in Piedmont and Western V ir­
ginia is in the cities of Danville, Martinsville, Lynch­
burg, and Roanoke.
The major manufacturing
centers in Eastern Virginia are the Hampton-Roads
area and the Richmond-Petersburg-Hopewell tri­
angle. The Shenandoah Valley has experienced con­

all durable lines increasing their respective shares.

siderable industrial development over the past 20

The value-added from the manufacture of durable

that does not rest solely in the urban centers.

THE INDUSTRIAL M IX
Durable Goods

Since 1958, durable good s in­

dustries have become increasingly important to V ir ­
ginia’s economy. The fraction of manufacturing em­
ployment accounted for by durables industries rose
from 36% in 1958 to 40% in 1967, with almost

years and significant pockets of manufacturing em­

goods nearly tripled between 1958 and 1967, rising

ployment extend from Winchester to Bristol.

from $0.5 billion to $1.5 billion.

But

The 1967 figure

Northern Virginia generally is dominated by agri­

represented 37% of the total value-added by manu­

cultural, commercial and government activity and

facturing in the state in that year.

offers relatively little in the way of manufacturing

creased its share of United States employment in

job opportunities.

manufacturing by 44% since 1950.

Virginia has in­
The number of

In recent years there has been a distinct tendency

Virginians employed in the manufacture of durable

toward dispersal of manufacturing facilities over the

goods has more than doubled since 1950, which is

C h a rt 2

AVERAGE HOURLY EARNINGS OF PRODUCTION WORKERS ON
MANUFACTURING PAYROLLS
D ollars
4.00

3.50

1970

3.00
1965
2 .50 | -

1961

2.00

1.50 | -

1.00

.50

U n ite d States

Source:

12

V irg in ia

M a ry la n d

F lo rid a

G e o rg ia

South C a ro lin a

U. S. D e p a rtm e n t o f Labor, B ureau o f L a b o r S ta tistics, E m p lo y m e n t a n d E arnings, 1939-1970.




M O N TH LY

REVIEW, JUNE

1972

N o rth C a ro lin a

Ta b le

I

MANUFACTURING EMPLOYMENT IN VIRG IN IA1
(th o u san d s)
1958

1967

1963

N um b e r

% of
Tota l

N um ber

% of
Tota l

N um ber

% of
Tota l

tal M an ufa ctu rin g
jra b le Goods
Lumber & Wood
Furniture & Fixtures
Stone, Clay & Glass
Prim ary M etal
Fabricated M etal
M achinery
Electrical Equipment
Transportation Equipment
Instruments
Misc. M an ufa ctu rin g

251.9
91.6
22.3
16.4
7.8
4.8
8.3
3.8
6.0
17.0
1.7
3.5

100.0
36.4
8.9
6.5
3.1
1.9
3.3
1.5
2.4
6.7
0.7
1.4

302.1
11 9.6
20.9
20.4
9.6
5.4
9.9
5.8
16.9
25.4
1.9
3.4

100.0
39.6
6.9
6.8
3.2
1.8
3.3
1.9
5.6
8.4
0.6
1.1

339.8
136.2
19.2
24.2
10.0
6.6
11.1
8.8
22.4
27.9
2.3
3.7

100.0
40.1
5.7
7.1
2.9
1.9
3.3
2.6
6.6
8.2
0.7
1.1

endurable Goods
Food & Kindred Products
Tobacco M anufacturers
Textile M ill Products
A p pa rel & Related Products
Paper & A llie d Products
Printing & Publishing
Chemicals & A llie d Products
Leather & Leather Products
O ther N ondurables2

159.9
31.4
13.4
34.9
21.5
1 1.0
9.6
30.6
5.0
2.5

63.5
12.5
5.3
13.9
8.6
4.4
3.8
12.1
2.0
1.0

175.7
32.1
13.7
36.0
26.6
12.1
10.6
35.1
4.3
5.2

57.9
10.6
4.5
11.9
8.8
4.0
3.5
11.6
1.4
1.6

192.4
31.5
13.7
38.4
30.4
13.2
12.7
40.9
5.0
6.6

56.5
9.3
4.0
11.3
8.9
3.9
3.7
12.0
1.5
1.9

1 Figures w ill n o t a d d to to ta ls because o f d a ta th a t a re n o t a v a ila b le .
Includes "P e tro le u m " a n d "R u b b e r."
Source:
U. S. D e p a rtm e n t o f C om m erce, Bureau o f Census, Census o f M a n u fa c tu re s , 1958, 1963, 1967.

better than twice the national increase.
Am ong the durable goods industries in the state,
transportation equipment led the field in 1967, ac­
counting for 8 .2 % of employment in the state’s dur­
able goods industries. The state’s shipbuilding in­
dustry is of national significance. One-eighth of all
shipyard workers in the United States are employed
by the state’s largest single manufacturing establish­
ment, a shipbuilding and dry dock company. This
is the only United States shipyard capable of building
and providing the full range of services required by
nuclear powered vessels.
The electrical equipment industry, a relative new­
comer in the state, grew rapidly in the 1960’s. It
provided 7% of total manufacturing jobs in the state
in 1967, compared with only 2 % in 1958. The valueadded total for this industry in 1967 came to $300
million, larger than that for any other durable goods
line. Production of industrial controls equipment is

electrical company account for 10 % of the nation’s
total employment in the manufacture of industrial
controls equipment.
The furniture industry has long been a mainstay
in the state’s industrial base, although it has not
shared in the recent rapid growth of other durables
manufacturers. In 1967, 7.1% of the state’s manu­
facturing workers were employed in this industry,
making it the sixth leading source of manufacturing
jobs. The value-added contribution of furniture and
fixtures manufacturing in 1967 was $232 million, not
much changed from its level in 1958. The state’s
industry concentrates heavily in the production of
non-upholstered household furniture and office furni­
ture. Virginia is the second leading producer of nonupholstered household furniture in the nation. This
category plus the group of office furniture manu­
facturers accounted for 95% of employment in
furniture manufacturing in the state in 1969.

especially significant in the state’s electrical equip­

During the past 20 years the relative importance of

ment industry.

Four Virginia plants of a large




the lumber industry in Virginia has decreased. Even

FEDERAL RESERVE B A N K OF R IC H M O N D

13

Ta b le

II

VALUE ADDED BY MANUFACTURING IN VIRG IN IA1
(m illio n s )
1958

1963

D o lla r

% of
T o ta l

Total M an ufa ctu rin g
D urable Goods
Lumber & W ood
Furniture & Fixtures
Stone, Clay & Glass
Prim ary M etal
Fabricated M etal
M achinery
Electrical Equipment
Transportation Equipment
Instruments
Misc. M an ufa ctu rin g

2,122.7
499.6
77.2
104.7
75.8
49.0
57.6
28.6
69.8
na
8.8
28.1

100.0
23.4
3.6
4.9
3.6
2.3
2.7
1.3
3.3
na
0.4
1.3

3,046.3
1,083.9
105.1
173.8
107.5
61.7
100.6
58.9
180.7
263.3
na
32.3

N ondurable Goods
Food & Kindred Products
Tobacco M anufacturers
Textile M ill Products
A p pa rel & Related Products
Paper & A llie d Products
Printing & Publishing
Chemicals & A llie d Products
Leather & Leather Products
Other N ondurables2

1,474.5
241.0
265.3
208.3
75.4
131.0
66.2
452.5
19.2
15.6

69.5
11.4
12.5
9.8
3.6
6.2
3.1
21.3
0.9
0.7

1,935.5
326.5
308.0
260.6
107.7
171.7
91.3
609.3
19.7
40.7

D o lla r

1967

D o lla r

% of
T o ta l

100.0
35.5
3.5
5.7
3.5
2.0
3.3
1.9
5.9
8.6
na
1.1

4,067.7
1,483.6
141.4
232.4
128.0
93.3
130.8
110.9
299.9
290.6
21.6
34.7

100.0
36.4
3.5
5.7
3.1
2.3
3.2
2.7
7.4
7.1
0.5
0.9

63.4
10.7
10.1
8.6
3.5
5.6
3.0
20.0
0.6
1.3

2,540.5
392.7
421.8
328.3
157.9
230.7
139.4
762.0
28.1
79.6

62.6
9.7
10.4
8.1
3.9
5.7
3.4
18.7
0.7
2.0

% of
T o ta l

1 Figures w ill n o t a d d to to ta ls because o f d a ta th a t a re n o t a v a ila b le .
2 Includes " P e tro le u m " a n d " R u b b e r."
Source: U. S. D e p a rtm e n t o f C om m erce, B ureau o f Census, Census o f M a n u fa c tu re s , 1958, 1963, 1967.

so, in 1967 the lumber industry was the state’s eighth
leading employer in the manufacturing field. A num­
ber of new products that came on the market in the
mid-1960’s helped to stabilize the lumber industry
nationally as well as statewide. The impact of these
developments was greater at the state level, as might
be expected, since the lumber industry is twice as
important to the state’s economy as it is nationally.
Nondurable Goods A s in the nation, the fraction
of total manufacturing employment accounted for by
nondurable lines has been on a gradually declining
trend in Virginia for some years. Nevertheless, non­
durables lines combine to account for the majority
of manufacturing jobs in the state as well as for the
largest share of value-added by manufacturing.
nondurables

sector

has

experienced

The

considerable

growth in recent years, but at rates below the rapid
expansion in the durables sector.

A s a result, the

state’s industrial base has approached a close balance
between durables and nondurables. In 1967, the non­

14




M O N TH LY

durables sector accounted for 57% of manufactur­
ing employment and 63% of value-added in the
state.
The comparable fractions for 1958 were
64% of employment and 70% of value-added. From
1958 to 1967, all categories of nondurable manu­
facturers increased their employment rolls; how­
ever, most nondurable lines accounted for a gradu­
ally diminishing fraction of total manufacturing
employment.
Based on 1967 employment data, the top three
nondurable goods industries in the state were
chemicals, textiles, and food processing. Tobacco,
which is a major industry in Virginia, supplied only
4% of the manufacturing jobs in the state in that
yea r; but the industry ranked second in its contribu­
tion to value-added by manufacturing. The disparity
between the industry’s rank as a source of jobs and
its rank in value-added results from its heavy con­
centration in cigarette production, a relatively capitalintensive operation.
The chemical industry is Virginia’s leading source

REVIEW, JUNE

1972

Table III

INVESTMENT IN MANUFACTURING IN VIR G IN IA1
(m illio n s )
1958

1963

1967

D o lla r

% of
Tota l

D o lla r

% of
Tota l

D o lla r

% of
T o ta l

Total M an ufa ctu rin g
Durable Goods
Lumber & Wood
Furniture & Fixtures
Stone, Clay & Glass
Prim ary M etal
Fabricated M etal
M achinery
Electrical Equipment
T ransportation Equipment
Instruments
Misc. M an ufa ctu rin g

141.6
25.1
7.5
3.5
4.2
1.8
3.0
1.7
1.2
na
1.1
1.1

100.0
17.8
5.3
2.5
3.0
1.3
2.1
1.2
0.8
na
0.8
0.8

231.8
59.4
11.8
7.6
10.2
4.5
7.7
4.0
5.9
6.8
na
0.9

100.0
25.5
5.1
3.3
4.4
1.9
3.3
1.7
2.5
2.9
na
0.4

347.0
95.5
12.4
9.1
16.5
6.3
13.7
8.2
13.0
13.5
0.6
2.2

100.0
27.6
3.6
2.6
4.8
1.9
3.9
2.4
3.7
3.9
0.2
0.6

N ondurable Goods
Food & Kindred Products
Tobacco M anufacturers
Textile M ill Products
A p pa rel & Related Products
Paper & A llie d Products
Printing & Publishing
Chemicals & A llied Products
Leather & Leather Products
Other N ondurables2

108.7
14.2
6.8
7.0
1.1
32.2
3.3
41.4
0.2
2.5

76.6
10.0
4.8
4.9
0.8
22.7
2.3
29.2
0.1
1.8

170.6
17.4
14.3
16.3
2.9
27.7
5.6
83.1
0.3
3.0

73.5
7.5
6.2
7.0
1.3
11.9
2.4
35.8
0.1
1.3

250.0
24.4
17.9
25.6
9.2
28.6
7.8
103.3
0.5
32.7

64.0
7.0
5.2
7.4
2.7
8.2
2.2
21.8
0.1
9.4

1 Figures w ill n o t a d d to to ta ls because o f d a ta th a t a re n o t a v a ila b le .
2 Includes “ P e tro le u m " a n d "R u b b e r."
Source:
U. S. D e p a rtm e n t o f C om m erce, Bureau o f Census, Census o f M a n u fa c tu re s , 1958, 1963, 1967.

of manufacturing jobs. Much of the state’s chemical
capacity has long been geared to the production of
man-made textile fibers and, through much of the
1950’s, to the production of rayon. W ith the decline
in the use of that product in the 1950’s, the state’s
chemical industry experienced a decline parallel to
the rest of the nation’s. But with the emergence of
new synthetic fibers in the 1960’s, the state’s pro­
ducers took on a new vitality. In 1967, for example,
Virginia provided over 12% of the nation’s new
jobs in the chemical field. In 1969, 4.5% of total
United States chemical employment and 3.6% of
the total value-added by manufacture of chemical
products originated in Virginia.
The textile industry has always been an important
element in the state’s industrial base and, until 1965,
was the largest source of manufacturing employment.
While the industry has declined in relative im­
portance in the state’s diversifying economy, it re­
mains the second largest source of manufacturing
jobs. Especially in the southern portions of the state,



it is clearly a dynamic and important factor in the
industrial prospects for the future.
In 1967, Virginia ranked sixth in the United
States in textile manufacturing employment, with
4.4% of the national total. Based on value-added by
the manufacture of textile products, Virginia ac­
counted for 4.3% of the United States total.
A n examination of the structure of Virginia’s
textile industry shows that more than one-half of the
manufacturing activities are directed toward the pro­
duction of broad woven fabrics. This branch of the
industry requires rather highly skilled workers who
command wages that are above the average for the
industry. Thus, the wage scale in Virginia’s textile
industry is higher than in many of the industry’s
sub-classifications. The individual Virginia textile
mill generally employs a relatively large labor force,
with employment per mill averaging 404 persons.
Six establishments, however, employ over 1,000
workers, and employment in one of Virginia’s mills
exceeds 10 ,000.

FEDERAL RESERVE B AN K OF R IC HM O ND

15

C h a rt 3

PERCENTAGE CHANGE IN MANUFACTURING
EMPLOYMENT IN VIRGINIA AND U. S.
1950-1969
Percent
(1 9 5 5 = 1 0 0 )
160

150 -

/

140

/

130

120

V irg in ia /

^

/

110

100 -

_______

/

The third largest source of manufacturing employ­
ment in the state is the food processing industry.
Like the textile industry, food processing has declined
in relative importance in recent years, with much of
the relative decline attributable to more rapid growth
in other lines. In 1967, more than 32,000 persons,
representing slightly over 9 % of manufacturing
employees in Virginia, worked in the food industry.
Value-added by manufacturing in this industry in
1967 totaled $393 million, or 2 % below the level
in 1958.
The composition of the industry has
changed substantially in recent years and only the
sharp increase in poultry processing has allowed the
food industry to maintain its position as the third
largest employer among the nondurable goods in­
dustries.

/

CONCLUSION
Virginia’s manufacturing growth has been geo
graphically well-dispersed and w idely-diversified
since the mid-1950’s. Around 1955, the state's manu­

s '

United States

90

facturing industry began to grow faster than the na­
tional average.

80

New industries were attracted to

Virginia, and those manufacturers already located
i

0

i

1950

i

i

1 i
1955

i

i

i

1 i
I9 6 0

i

i

i

1 i

i

i

1965

in the state expanded their plants and diversified
their production.

This process of expansion and

diversification has resulted in the rapid growth of
Source:

C om m o n w e a lth o f V irg in ia , D ivision o f In ­
d u s tria l D evelopm ent, M a n u fa c tu rin g in V ir ­
g in ia .

Virginia’s manufacturing sector and the constant
broadening of the industrial base of the state.
B. Gayle Burgess

The M o n t h l y R e v i e w is produced by the Research Department of the Federal Reserve Bank of
Richmond. Subscriptions are available to the public without charge. Address inquiries to Bank and
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16




MO N TH LY

REVIEW, JUNE

1972