Services trade competitiveness analysis (second session)

Services Trade

Competitiveness

Analysis

Sebastián SAEZ

Senior Trade Economist

Daria Taglioni

Senior Trade Economist

SERVICES TRADE COMPETITIVENESS

Why it matters?

What we are doing?

How we are doing it?

WHAT IS TRADE IN SERVICES?

3

Presence of supplier Other criteria Mode

Service supplier is not

present in the territory of

Member.

Service supplied in territory of one Member from the territory of

any other Member.

CROSS-BORDER

SUPPLY

Service supplied to a consumer of Member outside his territory,

in the territory of any other Member.

CONSUMPTION

ABROAD

Service supplier is

present in the territory of

Member.

Service supplied in territory of one Member, through commercial

presence of supplier of other Member.

COMMERCIAL

PRESENCE

Service supplied in territory of Member and supplier from other

Member is present in the form of a natural person.

MOVEMENT

OF

NATURAL

PERSON


4

WHY IT

MATTERS

Services play a strategic role in developing countries’

competitiveness – Positive correlation with GDP per capita

– Next stage of countries export diversification, sophistication and value addition

– Strategic input to many manufacturing processes

Governments want to improve their understanding of size, scope

and potential of services exports as well as the obstacles that need

to be removed to unlock the competitiveness of their countries’

services sector.

The questions they ask include: – How can we assess domestic vs. trade performance of services sector and their

importance?

– How can we assess the role of services as inputs in the traded sector of an

economy?

– What are the determinants of services trade performance?

– What is the relative importance of these determinants for different services?

– How do policies influence the efficiency of these determinants and of services

exports?

– What are the main policy constraints for trade in services growth and development?


7

WHAT ARE WE

DOING?

A framework for analysis covering three dimensions:

– Outcomes: scope and coverage of services export sector

– Potential for services exports: tradability, and services content

of downstream goods exports

– Enabling factors and obstacles

HOW / WHERE

ARE WE DOING

IT?

Gathering new data (trade in value added; bilateral flows, and firm

level)

Value added and bilateral data will be made available online by end

of FY13.

Focus on determinants: policies as well as supply-side factors (HK,

Infrastructure, others)

Pilot countries: Malaysia (full analysis), Cambodia and Kazakhstan

(partial analysis), Ghana (spillovers to the manufacturing sector)

SERVICES COMPETITIVENESS ANALYSIS

A three-dimensions analysis:

Outcomes: services and scope of the export sector

Potential for services export: tradability and services

content of exported goods

Enabling factors and obstacles

Note: This analysis depends on availability and access to data

DIMENSION 1:

SERVICES TRADE OUTCOMES ANALYSIS

– Size of trade

• Aggregate data ( compare indicators to highly developed

countries and peer countries)

• Firm level data analysis to assess characteristics of trading firms(*)

– Scope of trade

• Diversification

• Export survival and growth

• Sophistication and value addition

(*) Note: This analysis depends on availability and access to data

DIMENSION 2: POTENTIAL FOR SERVICES EXPORT

Services content of exported goods and services

Assessing tradability(*)

Potential vs. actual outcomes in export performance

Services complementarity with goods

Note(*): This analysis depends on availability and access to data

DRIVERS OF SERVICES GROWTH

• Human capital

• Infrastructure

• Access to technology

Economic Fundamentals

• Policies affecting trade, investment, and labor mobility in services

• Competition environment • Licenses and ‘behind the border’regulations

Policy Ecosystem

• Export promotion policies • Fiscal and other incentives

Active Promotion Policies

DIMENSION 3: TRADE DIAGNOSTICS

Trade diagnostic

– Foreign barriers: Market access

– Domestic barriers: services institutions

– Domestic barriers: Business environment for FDI

– Domestic barriers: Labor skills

– Domestic barriers: Trade related infrastructure

Policy Recommendations

Note: This analysis depends on availability and access to data

SERVICES TRADE OUTCOME ANALYSIS: SIZE

AND SCOPE OF THE SERVICES TRADED

SECTOR.

– Trade in services as a percentage of GDP and comparison with

services value added as a percentage of GDP.

– Services exports relative to services value added (measure of

tradability).

– Export growth: compared to goods and to peer countries.

– Measures of revealed comparative advantage (RCA) following

Balassa (1965).

– Measures of evolution of exports and world demand

investigating if specialization observed in a country is moving

into the most dynamic sectors of world demand.

Measuring the size of the sector comparing

with a country’s development level or region

Trade in services as a percentage of GDP and

comparison with services value added as a percentage

of GDP.

Measure of untapped potential

In general based on cross-border transactions

14

Services Valued Added to GDP: LAC, 2010

15

BRA

ARGCHL

URY

PRY

BOL

PERCOLECU

CRI

NIC

GTM

SLVHND

TTO

JAM

DOMMEX

2040

6080

100

Ser

vice

s va

lue

adde

d as

% o

f GD

P 2

010

4 6 8 10 12log GDP per capita 2010

Services Valued Added to GDP: EAPR, 2010

16

MalaysiaThailand

Singapore

Philippines

IndonesiaVietnam

2040

6080

100

Ser

vice

s va

lue

add

ed 2

010


Services Valued Added to GDP: SA, 2010

17

IndiaBangladeshPakistan

Nepal

Maldives

Sri Lanka

2040

6080

100

Ser

vice

s, e

tc.,

valu

e a

dde

d (%

of G

DP

) 20

10


ANOTHER ANGLE: COUNTRIES AND

REGIONS

18

DOES COMPOSITION MATTERS?

19

SERVICES TRADE TO GDP: LAC, 2010

20

BRAARG

CHLURYPRY

BOLPER

COL

ECU

VEN

CRI

NIC

GTMSLV

HND

TTO

JAM

DOM

MEX

020

4060

Tra

de in

Ser

vice

s as

% o

f GD

P 2

010

6 8 10 12log GDP per capita 2010

SERVICES TRADE TO GDP: EAR, 2010

21

SERVICES TRADE TO GDP: SA, 2010

22

Bangladesh

India

Maldives

PakistanSri Lanka

050

100

150

200

Tra

de in

ser

vice

s (%

of G

DP

) 20

10


SERVICES COMPOSITION AND GDP:2010

23

a. Transport services exports are

below expectations

b. Tourism services perform above

expectations

c. Other commercial services

exports lower than expected

Malaysia

Japan

Indonesia

Cambodia United States

Germany

Singapore

France

India

0.2

.4

.6

.8

Tra

nsp

ort E

xp

orts (%

S

ervices E

xpo

rts) 20

09

6 7 8 9 10 11log GDP per capita 2009

Malaysia

Japan

Indonesia

Cambodia

United States

Germany

Singapore

France

India

0.2

.4

.6

.8

1

Tra

vel E

xp

orts (%

S

ervices E

xpo

rts) 20

09


Malaysia

Japan

Indonesia

Cambodia

United StatesGermany

Singapore

France

India

0.2

.4

.6

.8

1

Othe

r S

ervic

es E

xp

orts (%

S

ervices E

xpo

rts) 2

00

9


COMPOSITION AND GROWTH: MEXICO

WORLD EXPORTS MEXICO’S EXPORTS

24

COMPOSITION AND GROWTH:

BRAZIL’S EXPORTS GROWTH

MEXICO’S EXPORTS GROWTH

25

COMPOSITION ANOTHER ANGLE: MALAYSIA

26

MEASURES OF EVOLUTION OF EXPORTS AND

WORLD DEMAND

27

DOES THIS DATA TELL US THE WHOLE

STORY: NO, MODES OF SUPPLY

28

Malaysian Investment in Services Is Increasing Distribution and Financial Services Main Malaysian FDI Destinations

0

5,000

10,000

15,000

20,000

25,000

RM

millio

n

2008 2009 2010 2011

47%

41%

37%

32%

7%

20%

28%

13%

25%

18% 18%

35%

16%18%

13%

17%

3% 3%4%

2%

2008 2009 2010 2011

Distribution ICT Financial Other services Construction

ANOTHER ANGLE TRADE ON VALUE ADDED

BASIS

29

Gross exports

Intermediate inputs

Upstream costs of intermediate inputs

Value added of intermediate inputs

Foreign value added of imported

intermediate inputs

Domestic value added of intermediate inputs (IDVA)

Direct value added of exports

(DVAE)

Total value added of exports =

DVAE+IDVA

OTHER COMMERCIAL SERVICES

30

a. Malaysia in the Asia region b. Malaysia globally

7%

2%

6%

5%

6%

14%

4%

4%

2%

21%

4%

5%

4%

11%

3%

6%

8%

9%

21%

6%

8%

5%

33%

6%

11%

8%

13%

6%

5%

12%

11%

27%

11%

9%

11%

29%

12%

13%

9%

0% 5% 10% 15% 20% 25% 30% 35%

Cambodia

Indonesia

Lao PDR

Malaysia

Philippines

Singapore

Thailand

Vietnam

China

Hong Kong

Up-Middle Income Asia

Low-Middle Income Asia

Low Income Asia

Service Exports/Total Exports SXs-VA/Total Exports

Gross Value

5%

4%

5%

5%

11%

3%

7%

7%

8%

9%

22%

3%

4%

8%

5%

10%

8%

17%

6%

13%

12%

14%

11%

38%

6%

8%

12%

9%

13%

14%

26%

17%

18%

16%

24%

23%

32%

19%

19%

0% 10% 20% 30% 40% 50%

Malaysia

LIC

LMIC

MHI

HI

Mexico

Brazil

Argentina

New Zealand

Australia

India

Japan

Korea, Rep of

Service Exports/Total Exports SXs-VA/Total Exports

Gross Value

SERVICE EXPORTS CONTRIBUTION TO TOTAL

EXPORTS 2007, VALUE-ADDED MEASURES

31

SERVICES TRADE OUTCOME ANALYSIS: SIZE AND

SCOPE OF THE SERVICES TRADED SECTOR.

Firm level measures of exports and imports of services, for those countries where this information is available.

Firm level measures from census and balance sheet data. These measures will include, for those countries where this information is available: – share of firms exporting, exports over domestic sales distribution,

size, TFP, value added, skill and earnings, inputs per worker, average wage, and average R&D investment of exporting vs. non-exporting firms, share of firms exporting. Comparison of these statistics for manufacturing vs. services exporters will allow inferring indirectly some aspects of the performance of the service sector compared to the manufacturing sector, for which a wider and more complete set of statistical information is available.

SCOPE OF THE SERVICES SECTOR

Conditional on data availability, the scope of the services sector can be quantified by looking separately at three dimensions: a) Diversification: services and markets;

b) Survival and growth; and

c) Sophistication and value addition.

The first two dimensions will allow us to assess the changes in services trade composition and to what extent they are similar to world services trade evolution.

The third dimension, will allow us to assess whether the composition of services is consistent with the level of development of the country.

INDICATORS

Export structure: Composition of country’s imports and exports

(across goods and services and within services) using sectoral data.

Export diversification using firm level data: measures of

concentration of exports; Gini coefficients, Pareto distribution of

firms.

– Diversification across modes of supply (including Herfindahl index).

Indicators of export survival and growth will include:

– Firm level survival rates for exports using firm-level data (if available)

– Growth decomposition of firm export growth. Comparisons with manufacturing.

Indicators of sophistication and value addition will include:

– Analysis on the sophistication of service exports

– Firm level measures of services export sophistication, including (weighted)

averages, medians and standard deviations of value added, sales and

employment, wage comparisons for firms in business services and in personal

services with firms in manufacturing. Detail for subsectors of services and

personal services.

EXPORT DIVERSIFICATION: MALAYSIA

35

EXPORT DIVERSIFICATION: TURKEY

36

EXPORT DIVERSIFICATION: INDIA

37

MARKERT DIVERSIFICATION LIMITED DATA

AVAILIBILITY: MALAYSIA MIRROR DATA

Export: Top 10 share in total exports is 42% Imports: Top 10 Share in total imports is 23%

USA 22%

Japan 20%

Australia 16%

Germany 9%

Netherland 9%

Great Britain

7%

Greece 6%

France 6%

Canada 3%

Finland 2%

Top 10 Trading Partners: 2007

Singapore 23%

Japan 21%

USA 12%

Australia 10%

Hong Kong 9%

Great Britain 7%

Netherland 6%

Germany 5%

Greece 5%

France 2%

Top 10 Trading Partners: 2007

Source: World Bank database on bilateral services flows

SOPHISTICATION: WHAT IS IT?

Aim moving up the value chain through modern services that are embedded inherently with higher productivity levels.

Measure of the sophistication of exports of manufactures and now also services (see Mishra et al 2011, based on the measure developed in Hausmann, Hwang and Rodrik, 2007, for goods alone).

This measure can be thought of as representing the “quality” of a country’s export basket.

Intuitively, the measure captures whether any given country’s export basket consists primarily of services typically exported by high-income economies (and viewed as relatively sophisticated) or by low-income economies.

Not a value judgement with regard to more “traditional” services such as tourism, transportation, or others.

39

SOPHISTICATION: 2010

East Asia (Y axis log)

South Asia (note Y axis scale are different)

40

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Bangladesh India Maldives Nepal Pakistan Sri Lanka

SOPHISTICATION: LAC 2010

41

BRA

ARGCHL

URY

PRY

BOL PERCOL

ECUVEN

CRI

NIC

GTM

SLV

HND

JAM

DOMMEX

8.5

99.

510

Ser

vice

s S

ophi

stic

atio

n 20

09

6 8 10 12log GDP per capita 2009

SOPHISTICATION: EAPR, 2010

42

Malaysia

Japan

Indonesia

Cambodia

United StatesGermany

Singapore

France

India

8.5

99.5

10

Sop

his

ticari

on

Ind

ex

200

9


SOPHISTICATION: SOUTH ASIA, 2010

43

BGD

IND

NPL PAK

LKA

MDV

8.5

99.5

10

log s

erv

ice e

xport

so

phis

ticatio

n 2

009


DETERMINANTS OF

SERVICES

PERFORMANCE:

DIAGNOSTICS

44

DRIVERS OF SERVICES GROWTH

• Human capital

• Infrastructure

• Access to technology

Economic Fundamentals

• Policies affecting trade, investment, and labor mobility in services

• Competition environment • Licenses and ‘behind the border’regulations

Policy Ecosystem

• Export promotion policies • Fiscal and other incentives

Active Promotion Policies

Fundamentals

Relatively given in the short-term can be improved over time

46

Human Capital and Cross-Border Services

47

Malaysia: Knowledge Intensive Sectors

0%

10%

20%

30%

40%

50%

60%

70%

80%

The “knowledge intensity” of a sector is defined by the

share of its workforce attaining tertiary education.

According to the 2008 Labor Force Survey, the

industries with high knowledge intensity tended to be

services.

How to identify Skills Gap?

10

14

18

22

23

24

25

28

30

37

46

48

0 10 20 30 40 50

Teamworking

Social

Adaptability

Leadership

Time management

Numerical

Problem solving

Technical/professional

Creativity/innovation

Communication

English language

Information technology

Percent of firms

reporting skill as a

constraint

Electronic Infrastructure: Important but….

50

Policies:

investment,

migration, and

regulations

51

How restrictive are policies? STRI and Tariff

Equivalent

52

MalaysiaThailand

United States of America

ItalyFrance

Germany

Vietnam

United Kingdom

Japan

India

China

Philippines

Cambodia

Nepal

Mongolia

020

40

60

80

Tra

de

Ba

rrie

r


Policies: Restrictiveness and Regulatory

Governance

All Countries in the Sample

Developing Countries

53

Regulatory Indicators

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

1996 2000 2003 2005 2007 2009

MALAYSIA SINGAPORE INDONESIA THAILAND PHILIPPINES

0

0.5

1

1.5

2

2.5

1996 2000 2003 2005 2007 2009

MALAYSIA KOREA, Rep. of SINGAPORE

NETHERLANDS UNITED STATES

54

THE ROLE OF

pro-active POLICIES

Government policies in specific sectors

Targeted policies to support exports But

Aim at creating enabling business environment with better infrastructure, more streamlined regulatory framework, and incentives

Weaken broad resistance to reform by focusing on a sector that can easily win support from business community (e.g., IC services)

Provides demonstration effect to motivate more significant reforms by showing the benefits to investors of a more transparent and predictable regulatory environment

It is hard to establish a

causal link

There are examples of

pro-active policies that did

not work as well Pro-

active policies pose risks

and must be carefully

designed

The role of private sector

Cooperation by firms through an industry association can favorably influence policy at home and its image abroad

India’s association for software services (NASSCOM) gave Indian IT companies unified voice, played role in policy-making process, built brand image of India as premier global sourcing destination, and started assessment and certification process

The Business Processing Association of the Philippines (BPAP) developed a blueprint to help bolster competitiveness of Filipino BPO firms, played role in industry policy-making (data protection Act), and produced a scorecard to assess readiness and develop working capacities

Basic Data sources

World Development Indicators

International Monetary Fund

Knowledge Assessment Methodology

World Bank Governance Indicators

Country information:

– National Accounts Statistics

– Employment Statistics

– Balance of Payments

– FDI

International Trade Department Statistics – Trade on Value-Added basis

– Bilateral Trade Flows

Sectoral data available for Financial sector, IT and IT related services, transport data. Less so for other sectors.

58

Thanks!

59