International trade in financial services

Abstract

International trade in financial services is a topic of some importance both to the financial services sector itself and in international trade negotiations. Unfortunately, intrinsic problems in defining and measuring trade in services, combined with a lack of data in many countries, have made empirical analysis of trade in financial services difficult. Recent improvements in data, although still providing only a limited coverage, do now provide a basis for analysis. In this paper, we use data from the OECD International Trade in Services Statistics 2001 database to conduct an analysis of trade in financial services based on standard theories and empirical techniques for international trade. Our results suggest that the key concepts of international trade are of use in understanding international trade flows in financial services. In particular, we find evidence of significant volumes of intra-industry trade in financial services, as well as significant volumes of inter-industry trade for some countries, including the UK. Using Balassa's ‘revealed comparative advantage’ index, the most highly ranked countries are Belgium-Luxembourg, Italy, Switzerland, the UK, the USA and Greece. Using the ‘net export ratio’, the countries that are ranked highest include Germany, Switzerland, the UK, the USA and Belgium-Luxembourg.