The Comparative Advantages in the services sector of the developing economies

Master in International BusinessNuno Montenegro | Supervised by Professor Rosa Forte | September 2016

Presentation Structure

2

Background and Motivation

Research question and Goals

Literature Review:

- Defining Services

- Determinants of Comparative Advantages

- Measuring Comparative Advantages

- Empirical Studies in comparative advantages in developing economies

Methodology Consideration

Some empirical results

Conclusions

Limitations and Further contributions

Background and motivation- Growing presence of the Developing Economies in Global trade (both

merchandise and services)

- Strong service trade growth since last century; more resilience to the

2007 financial turmoil

- Tertiarization process of the developed economies → expected

behavior of the developing economies

- A well-established service sector provides competitiveness of the

economies

3

Research question and goals

4

Identify a set of economies representative of the developing

world

Identify a proper indicator for measuring comparative advantages in services

Explore their Services Export

Structure

Understand the evolution of

such Structure

“How have the comparative advantages in the services categories evolved in the developing countries?”

Empirical Studiesregarding these

topics

Literature review

5

Definition of services

Determinants of Comparative Advantages

Measuring Comparative Advantages

Defining services

6

Services have unique characteristics that affect their tradability.

Typical characteristics include:

1) Intangibility - so that international transactions in services are often difficult to monitor, measure and tax;

2) Non-storability - so that production and consumption often must occur at the same place and time;

3) Differentiation - services are often tailored to the needs of customers;

4) Joint production - with customers having to participate in the production process.

Hoekmand and Matto (2008, p.6)

Determinants of comparative advantages

7

The model developed by Chor (2010) studies the importance of three different sources of comparative advantage:

Technological differences

David Ricardo(1817)

Relative factor endowments

Heckscher-Olhin(1919)

Institutional Environment

Anderson and Marcuiller (2002);

Nathan Nunn (2007)

It concludes that each of these sources share a similar degree of importance in explaining a comparative advantage

Measuring Comparative Advantages

8

Balassa Index Normalized RCA

Requires several corrective measures, such as the SRCA

and the ARCA

A new measure that corrects several problems of the BI; does not require corrective

measures

Empirical studies of Comparative Advantages in the developing economies

9

Some paths found within the 25 studies retrieved:- Regions studied: Eastern Europe or South-East Asia;

- Balassa index is the most commonly used index;

- Data from the end of the 20th century to the beginning of the 21st

century;

- The Merchandise sector is the norm of the analysis;

- Extensive use of the United Nations Databases

Methodology Considerations

10

Quantitative analysis:

- Secondary data retrieved from the UNCTAD statistics

Database

- Top 10 developing economies service exporters

- 2000 to 2013 (14 years of analysis)

- 10 categories of services

- Normalized Revealed Comparative Advantage Index

(NRCA) and Trade Balance Index (TBI)

Empirical results: Computer and information services

11

Empirical results: Financial services

12

The trade balance Index

13

Symmetrical index;Reveals if a country is a net importer or net exporter;Purpose: Examine if a comparative advantage is reflected in a superavit situation.

Normalized Revealed

Comparative Advantage

NRCA > 0Area 2: Comparative advantage and net

importer

Area1: Comparative advantage and net

exporter

NRCA < 0Area 3: Comparative disadvantage and net

importer

Area 4: Comparative disadvantage and net

exporter

Trade Balance Index TBI < 0 TBI > 0

Empirical results: Computer and information services

14

Empirical results: Financial services

15

Conclusions

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- Countries present an export specialization (NRCA > 0

and TBI > 0);

- Strong comparative advantage in one service;

- Similar conclusions with other studies, even though the

index used was different;

- Presence of the three sources of comparative

advantage.

Limitations and further contributions

17

- Lack of data for some countries in some categories;

- Change in the services statistics’ methodology;

- The need to complement the analysis with more

information and indexes;

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Thank You!