Institutional Units and Sectors 9
Residence.
2.6 A n economy consists of a set of resident insti-
tutional units. As is the case for other macroeconomic
statistics, the concept of residence is important for
determining the coverage of institutional units and
the classifi cation of transactions. Also, as described in
later chapters (see paragraphs 5.101–5.103, 6.93, and
7.264–7.265), some types of fl ows and stock positions
of assets and liabilities of general government and
public sector units are classifi ed in GFS on the basis
of the counterparty to a fi nancial instrument, where
one of the classifi cation criteria is the residence of the
counterparty.
2.7 Th e residence of each institutional unit is the
economic territory with which it has the strongest
connection (i.e., its center of predominant economic
interest).^2 According to international statistical guide-
lines, residence is not based on nationality or legal
criteria, although it may be similar to the concepts of
residence used in many countries for exchange con-
trol, taxes, or other purposes. Nonresidents are units
that are resident in any other economic territory, and
for convenience they are referred to as the ‘‘rest of the
world.’’
2.8 Economic territory, in its broadest sense, can
be any geographic area or jurisdiction for which sta-
tistics are required. Th e most commonly used concept
of economic territory is the area under the eff ective
economic control of a single government. Th e concept
of economic territory in GFS is the same as that used
in other macroeconomic datasets. Th e connection of
entities to a particular economic territory is deter-
mined from aspects such as physical presence and
being subject to the jurisdiction of the government of
the territory. However, economic territory need not
be identical to its physical or political borders, and
may be larger or smaller than this, as in a currency or
economic union, or as part of an economy, region, or
the world as a whole.
2.9 Economic territory includes:- Th e land area
- Airspace
(^2) Residence is primarily defi ned in the BPM6, paragraphs 4.11 3–
4.144, and also discussed in the 2008 SNA, paragraphs 4.10–4.15,
and Chapter 26.
- Territorial waters, including areas over which
jurisdiction is exercised over fi shing rights and
rights to fuels or minerals - In a maritime territory, islands that belong to the
territory - Territorial enclaves in the rest of the world (such
as embassies, consulates, military bases, scientifi c
stations, information or immigration offi ces, aid
agencies, central bank representative offi ces with
diplomatic status).
2.10 Territorial enclaves are physically located in
other territories and used by governments that own or
rent them for diplomatic, military, scientifi c, or other
purposes with the formal agreement of governments
of the territories where the land areas are physically
located. Th ese areas may be shared with other organi-
zations, but the operations must have a high degree of
exemption from local laws to be treated as an enclave.
Government operations that are fully subject to the
laws of the host economy are not treated as enclaves,
but as residents of the host economy. Conversely, the
economic territory of a country does not include the
territorial enclaves that are physically located within
the geographical boundaries of that country that are
used by foreign governments or international orga-
nizations and are not subject to the laws of that host
country.
2.11 Sometimes a government has a separate
physical or legal zone that is under its control, but for
which, to some degree, separate laws are applied. For
example, a free trade zone or off shore fi nancial center
may be exempt from certain taxation or other laws.
Because of the need to view the whole economy, to
have comprehensive global data, and to be compat-
ible with counterpart data, these special zones should
always be included in the economic statistics of the
economy that exercises control over the separate
physical or legal zone.^3
2.12 An institutional unit has a center of pre-
dominant economic interest in an economic terri-
tory when there exists, within the economic territory,
some location, dwelling, place of production, or other
premises on which, or from which, the unit engages
(^3) Where analytically useful, data for these zones could be pre-
sented separately, before they are consolidated with those of the
remainder of the economy.