Comparative Advantage In Services Research Articles

Does the depth of trade agreements matter for trade in services?

AbstractIn recent years, deep trade agreements have spread around the world and gone beyond tariff reductions. We aim to test whether the depth of agreements fosters trade in services. To do so, we use a structural gravity‐type model and build new indicators of the depth of agreements based on the number of articles that are legally enforceable and that are related to trade in services. We show that, while only the deepest trade agreements raise trade in services, the quality of institution determines how deep agreements affect both the intensive (measured by the quantity of trade) and extensive margins of trade (measured by the number of service products exported and the share of the most exported service product in total services exports). This result is more pronounced for some service provisions and is robust after we control for the endogeneity of deep trade agreements. Finally, our results also hold for the Middle East and North Africa countries that we examine as an example of an emerging region that has a comparative advantage in services but whose most of the trade agreements are rather shallow.

The COVID-19 shock and services trade decline: potential for digitalization matters

ABSTRACT Global services trade declined by 20% during 2020 with significant heterogeneity across countries, geographical regions and sectors. We present stylized facts and provide hypotheses and empirical analysis seeking to explain this heterogeneity. The decline is found to be correlated with COVID-19 case and mortality rates; stringency of imposed lockdowns; the decline in merchandise trade; and with different ways of transacting services trade. The latter depends on the sectoral composition of services trade across countries, which in turn emanates from more fundamental determinants of comparative advantage in services, generating testable hypotheses to explain the observed heterogeneity in services trade decline. Focusing on attributes of digitalization and the role of value-chains, we find that human-capital-intensive countries with favourable digital-trade policies and greater ability to leverage ICT infrastructure were associated with relatively smaller declines. Moreover, the expected role of GVC-integration in accentuating the services trade decline finds little support in empirical results across sectors providing evidence instead for the GVC-resilience narrative.

India–Republic of Korea CEPA: Assessment and Future Path

India and the Republic of Korea (ROK) are on the path to forging deeper economic cooperation. Both countries signed a Comprehensive Economic Partnership in 2009, which was in effect in 2010, and agreed to reduce and/or eliminate tariffs on goods. In this paper, we examine the sectors—both merchandise goods and services—where India and the ROK have a comparative advantage. We analyze the tariffs and non-tariff measures in the context of India–ROK trade and the gains from trade that can result from a reduction in tariff barriers. Our results suggest that India has a comparative advantage in services and the ROK in merchandise goods. Therefore, future negotiations must focus on India offering market access to the ROK’s merchandise goods and the ROK providing access to India’s services.

Bilateral servicification in global value chains and deep trade agreements

AbstractInternational trade has been transformed by participation in global value chains (GVCs), where services linkages play a critical role. Recent studies examine the impact of deep trade agreements on GVC‐related trade, but none of them focusses on GVC‐related services. Using the gravity framework, this paper investigates the impact of trade agreements with substantial provisions on services on bilateral foreign services value added embodied in manufacturing exports. We also consider the depth of these agreements and explore the asymmetric effects depending on the partners’ income level, the EU membership and on the direction of the trade flows. The analysis reveals that deep trade agreements with services provisions boost embodied services value added from partner countries, with larger impacts for deeper agreements. Moreover, there are heterogeneous effects, which are particularly significant for North–North flows and for embodied services value added from EU countries. Therefore, those deep trade agreements seem to allow the EU to exploit its comparative advantage in services and, consequently, strengthen intra‐EU GVCs and GVCs with non‐EU countries.

Alleviating Unemployment in South Africa: Harnessing Comparative Advantage in the Services Sector

This article reviews the trajectory of employment in South Africa before and during the Covid-19 pandemic and lockdowns. Thereafter, we propose measures for the alleviation of unemployment through the development of a comparative advantage in services as a response to the environment created by existing policies and multiple crises. The policy is the best response to the consequences of existing measures in place. Threats – in the form of the pandemic, advances in Fourth Industrial Revolution (4IR) technologies, online retail, and the July 2021 lootings – present the need for strategic investment and further protections for this sector.

The Significance of Services and Data in Global Value Chains

Global value chains (GVC) are undergoing a transformation as business focus on building resilience. Services and data are already adding value to GVC, particularly manufacturing GVC. Global data flows and digital technologies such as cloud computing and AI enable growth in digitally enabled service exports and further opportunities to add value to manufacturing GVC. Moreover, services-only GVC are evolving as businesses use digital services and technologies sourced globally. • All countries have some comparative advantage in services and as GVC become increasingly services driven and rely on data, new opportunities for GVC participation by developing country and small and medium sized enterprises (SMEs), are emerging. As manufacturing GVC mature, served used are increasingly being sourced globally as business seek best-in-class inputs to maintain overall competitiveness. Yet, services trade barriers remain high – higher than for goods. In addition, countries are increasingly restricting global data flows and requiring data localization. There is also the risk that divergent standards in areas such as 5G, a technology which will underpin new digital services and GVC, will create additional barriers. Trade policy has an important role to play in supporting growth in services and data in GVC. Trade policy should also priorities addressing barrier to services trade and data flows. The failure of the WTO in further liberalizing services trade has had the perverse effect that for many countries services restrictions are becoming the key barriers to growing trade in manufactured goods. Services trade restrictions are also higher in developing countries, placing them at a disadvantage when it comes to participating in GVC.

Services Trade: The Great Gender Equaliser?

Standing at 24% in 2018, India’s female labour force participation is only half of the global average (48%). At the same time, India has one of the widest gender wage gaps in the world and women are less likely to be employed in the formal sector compared to men. This article focuses on how international trade affects relative wages and formal employment between men and women in India. Using the Revealed Symmetrical Comparative Advantage index, sectors of comparative advantage and disadvantage are identified and matched to Indian labour force surveys that contain information on sectoral employment and earnings. We find that sectors of comparative advantage in services have the lowest gender wage gap, with women earning 24% less than their male counterparts, while women in manufacturing earned on average 40% less than male workers. Using the Oaxaca–Blinder decomposition, we find that the total gender wage gap in sectors of comparative advantage in services are minor while it is quite substantial in manufacturing, regardless of comparative advantage status. The article concludes that services trade goes hand in hand with a smaller gender wage gap as women leverage their skills better in services than in manufacturing. JEL Codes: F16, F14

What Explains the Heterogeneous Decline in Services Trade Observed during the Pandemic?

Global services exports and imports declined by 20% each in 2020 from their value in 2019 with significant heterogeneity across countries and sectors. The decline is found to be correlated with the incidence of COVID-19 cases and mortalities, the decline in merchandise trade and with the different ways in which services trade is transacted across sectors. The latter depends on the sectoral composition of services trade across countries, which in turn emanates from more fundamental determinants of comparative advantage in services. Results from empirical analysis suggest that larger, more capital- and PTA-intensive economies with more restrictive policies on digital trade and lower ability to leverage ICT infrastructure were associated with relatively larger declines in services trade. Regulatory quality is found to have played both alleviating and intensifying roles in the decline, while geographical remoteness is inversely related. However, the expected role of GVC-integration in accentuating the services trade decline finds little support in the GMM results.

Sources of Comparative Advantage in Services: Institution vs. Social Capital

서비스 무역은 세계 무역에서 가장 역동적인 모습을 보이고 있다. 세계 전체 무역에서 서비스 무역이 차지하는 비중이 지속적으로 증가하고 있을 뿐만 아니라, 재화의 무역과는 달리 금융 위기 이후 서비스 무역은 빠르게 회복되고 있다. 비교우위의 원천으로서 제도의 중요성을 강조한 연구의 대부분은 재화에 초점을 두고 있는 반면에 서비스의 비교우위에 미치는 영향을 분석한 연구는 많지 않다. 특히 서비스는 무정형성, 비저장성, 생산과 소비의 동시성 등의 특징을 갖고 있기 때문에 재화에 비해 사전 선택의 위험이 상대적으로 더 높고, 글로벌가치사슬에 포함된 기업 간 서비스 거래 또한 계약 파기의 위험이 상존하기 때문에 서비스거래 위험이 재화 거래에 비해 더 높다. 이는 서비스 거래의 이행은 제도만으로 이루어지기 어렵다는 것을 시사한다. 이에 본 연구는 제도의 대안으로서 사회적 자본에 주목하고, 제도와 서비스가 서비스 비교우위의 결정요인인지를 분석하였다. 분석 결과, 제도 보다는 사회적 자본이 서비스 비교우위에 긍정적인 영향을 미친다는 것을 발견하였다.

Trade in Services and Economic Development

The services sector in the most important sector for most developing economics. It is the largest contributor to gross domestic product. Production and employment since it is such an important sector developing economics need to identify their comparative advantage in services and potential export markets, Gives the potential for development enhancing and poverty- alleviating trade in services. Including as promoted through in General Agreement on trade in services (GATS) the better integration of developing countries (DCS) in the global services economy should be of priority for government across the world and the international Community as a whole. Developing economics have a comparative advantage in labour services. They have an advance of low and semi-skilled labour that is a major into tourism, construction and transport services. Developing economics can improve their export revenues by specifically identifying these restrictions and where a movement of labour in required, promote the benefits to potential export mare lets of services to trade liberalization. As developing economics remove their restrictions, their services sectors develop, primarily funded by foreign direct investments and they become major exports .A key finding sailing from the modeling simulations is that both developed and developing countries benefit from the services trade liberalization, with the developing countries standing to benefit more than the developed Countries.

Structural Change, Gender Gaps, and Educational Choice

Men in low-income countries invest considerably more years in school than women. From low- to high-income countries, women's years of schooling increase faster than men's, so that the gender gap in years of schooling declines. In this work, I assess in how far this decline may be related to the fact that from low- to high-income countries, women's hours in formal work increase relatively faster than men's, too. I develop a general-equilibrium model of structural change in which men and women choose years of schooling and hours worked. Women have a comparative advantage in services, and their hours in formal work catch-up to men's as structural change gives rise to a formal service sector. Quantitatively, the model can reconcile the common decline of both gender gaps.

The service economy: U.S. trade coalitions in an era of deindustrialization

Services dominate the US economy and are increasingly traded across borders yet little is known about service firms’ trade policy objectives or lobbying activities. We fill this gap by examining services’ political engagement on trade policy as manifested through lobbying, public positions on trade, and reports issued by U.S. Industry Trade Advisory Committees. We document for the first time that service firms are highly active in the politics of US trade agreements and, compared to firms in goods-producing industries, are much less likely to disagree over trade. Instead, service firms are almost uniformly supportive of US trade agreements, which we explain by focusing on the stark US comparative advantage in services. Service firms are therefore a key constituency for deeper international economic cooperation, helping to explain the present era of global integration despite tough times for uncompetitive US manufacturing. We expect service producers to join the defense of global economic order against emergent populism.

Brexit and the Future of UK Capitalism

Brexit and the Future of <scp>UK</scp> Capitalism

Sources of Comparative Advantage in Services: Institution vs. Social Capital

Previous studies that have identified the impacts of institutions or cultural traits on comparative advantage focused on goods trade, but not services trade. In contrast to the rapid increase in trade in services, empirical examination on sources of comparative advantage in services trade remains limited. This paper attempts to fill this gap by investigating empirically the impacts of institution as well as social capital on comparative advantage in services trade. Services are exposed to relatively more pre-choice risks than goods, because it is difficult to obtain information on the quality of services before the consumer decides to purchase. In addition, trade in services involved in global value chains possibly takes on the risks of contract breach by other firms along the same value chains. As a result, the transaction risks for trade in services are higher than for trade in goods. Using the World Input Output Database, we estimate the importance of social capital for comparative ad-vantage in services. We find that countries with more social capital tend to specialize in the production of contract-intensive services. We also find that social capital rather than institution matters for comparative advantage in services.

Dynamics of Services Exports in India

The article examines the dynamics in specialization pattern of comparative advantage in services exports from India for the time period 2004–2013, while drawing a distinction between the pre- and the post-crisis trends. The analysis is based on a modified revealed symmetric comparative advantage index. It also employs the Galtonian regression and the Markovian transition matrices to study the distribution and intra-distribution dynamics of export patterns. The results reveal that India has a strong comparative advantage in modern services mainly business services and computer and information services. The findings suggest a stable but broadening pattern of specialization of India’s services exports. Further, the transition probabilities reveal that the chances of remaining in or switching to a state of comparative disadvantage are more pronounced than being or moving to a state of comparative advantage. Overall services exports exhibit high persistence in both the pre- and post-crisis period pointing towards a low impact of crisis on India’s services exports. JEL: C14, F14, L80

Balancing the Economy: The Hand of Government or the Invisible Hand?

Despite its considerable strengths, the UK economy is seen as having a number of problems, in particular productivity which lags behind some competitors, low levels of investment and persistent regional disparities. Following the referendum decision to leave the EU, there is wide interest in developing a new industrial strategy. The UK has a growing comparative advantage in services which the government should not attempt to frustrate by favouring manufacturing. The past record of industrial policy in the UK is a catalogue of waste and ineffectiveness. By the end of the 1970s it was widely accepted that the strategy of attempting to pick winners and promoting national champions was fundamentally flawed. While political pressures mean that the revival of interest in industrial strategy is understandable, it is not clear that the sectorally-based policies being suggested are fundamentally different from those proposed in the past. Governments are still likely to be tempted to intervene for narrowly political motives and it is still assumed that governments possess insights which the private sector is denied. The UK’s economy and its population would be better supported by a revival of ‘horizontal’ rather than ‘sectoral’ strategy, concentrating on boosting competition, relaxing planning controls, liberalising energy, deregulating markets and promoting tax reform. The government should also eschew protectionism and excessive restrictions on migration.

Comparative advantage, service trade, and global imbalances

The large current account deficit of the U.S. is the result of a large deficit in the goods balance and a modest surplus in the service balance. The opposite is true for Japan, Germany, and China. Moreover, I document the emergence from the mid-nineties of a strong negative relation between specialization in the export of services and the current account balances of a large sample of OECD and developing countries. Starting from these new stylized facts, I propose in this paper a service hypothesis for global imbalances, a new explanation based on the interplay between the U.S. comparative advantage in services and the asymmetric trade liberalization process in goods trade versus service trade that took place starting in the mid-nineties. First, I use a structural gravity model to show that service trade liberalization lagged behind goods trade liberalization, and I quantify the extent of this asymmetry. Second, I show that a simple two-period model can rationalize the emergence of current account deficits in the presence of such asymmetric liberalization. The key inter-temporal mechanism is the asymmetric timing of trade policies, which affects saving decisions. Finally, I explore the quantitative relevance of this explanation for global imbalances. I introduce trade costs in an otherwise standard 2-sector 2-country international real business cycle model. When fed with the asymmetric trade liberalization path found in the data, the model generates a trade deficit of about 5% of GDP. I conclude that the service hypothesis for global imbalances is quantitatively relevant.

Can Export Facilitation Improve Chinese Comparative Advantage? Panel Granger Causality Tests Using Data of 1982-2011 Trade in Services

This study tests for the Granger causal relationship between China's export facilitation and comparative advantage in services. We employ net export ratio (NX) to capture the changing export facilitation, and use revealed symmetric comparative advantage index (RSCA) to measure the comparative advantage. Using annual panel data for eleven categories of service trade across 1982 to 2011, we perform heterogeneous panel co-integration tests and panel Granger causality tests. We document empirical evidences that 1) the comparative advantage exerts no influence upon the net export ratio of China’s trade in services; 2) the net export ratio Granger cause the comparative advantage in both short-run and long-run; and 3) China’s service export facilitation hurts the comparative advantage in the short-run, but the long-run effect is positive. Our findings shed new light on the understanding of the Chinese strategic trade policy in services trade.

Revealed comparative advantage and competitiveness in services

PurposeThe purpose of this paper is to analyze the competitiveness of selected services: business, financial, transport and travel services in developing countries in relation to that of the rest of the world based on three indices of revealed comparative advantage.Design/methodology/approachThe study uses revealed comparative advantage (RCA) indices to measure developing countries' comparative advantages in selected services for the period 1998‐2003.FindingsStrong comparative advantages exist for many developing countries in transport, and travel services. There is substantial room for improvement in financial and business services. Trade liberalization and lack of adequate preparation appears to have resulted in a weakening of their comparative advantages over the years. However, their revealed comparative advantages remain, by and large, stable and do not show a fundamental shift in the structure of their comparative advantages.Originality/valueThere are no studies examining developing countries' comparative advantages in services. The findings and policy recommendations can be used by developing countries to improve the competitiveness of their service sectors.

Human Capital as a Basis of Comparative Advantage Equations in Services Outsourcing: A Cross Country Comparative Study

International outsourcing of services has come to occupy an increasingly important part of international trade. Analytically services outsourcing is the export of services by a country to the outsourcing nation. Given this, the pattern of trade in these services would be decided in line with country specific comparative advantage equations. Since services are typically intensive in skilled labour and educated manpower, what matters for a country's comparative advantage in services is its resource base in terms of skilled and educated manpower. This is a cross country study which uses the intuitive logic of the Hecksher Ohlin model to determine comparative advantage for a sample of developed countries such as the US, that essentially constitute outsourcers, and developing nations such as India and China that carryout outsourcing. Different definitions of human capital are compared to identify comparative advantage. A key conclusions is that for services outsourcing, the definition of human capital needs to be restricted to secondary and particularly tertiary students rather than literacy. This is further validated by the significance of size of tertiary students in cross country equations estimating business service exports. Secondly, what matters for comparative advantage is the absolute size of the human capital base rather than in percentage terms.