9

**Table 4:** _Composition of exports of services and their exports in terms of imports in 1998-2004_

||2000|2001|2002|2003|2004|**Memorandum:**change in value<br>Index,2002<br>Index,2004|
|---|---|---|---|---|---|---|
|.|Receipts|fromse|rvices e|xports||2000=100<br>1999=100|
|Transport|15%|18%|19%|12%|14%|95<br>113|
|Travel|38%|51%|58%|70%|67%|111<br>305|
|Construction|5%|4%|6%|4%|3%|86<br>66|
|Other commercial services|28%|18%|7%|7%|7%|18<br>36|
|Insurance and financial services|2%|2%|2%|2%|1%|60<br>90|
|Other services|13%|7%|9%|6%|9%|53<br>77|
||E<br>|xportsin<br>|terms of<br>|imports<br>||<br>|
|Transport services|120|141|145|81|75|79<br>206|
|Travel services|446|465|451|625|629|110<br>172|
|Other commercial services|376|246|94|98|109|73<br>137|
|Insurance and financial services|55|46|36|78|76|93<br>60|
|Other services|123|139|183|107|128|35<br>45|

Source: IMF Balance of Payments statistics.

And a cursory examination of trade developments in various categories of services does not alter the picture. In fact, it raises a lot of new questions but offers few, if any, answers, with developments in some instances defying common wisdom. For instance, considering revealed comparative advantage of Turkish construction companies, supported among others by press information about construction bids won abroad (e.g., airports in Cairo and Moscow), a 34 percent lower level of their foreign activities in terms of value in 2004 as compared to 1999 is difficult to explain. Similarly, the decline in both exports and imports of insurance and financial services would be tough to explain in view of the restructuring of the financial sector and burgeoning trade in goods in 2001-2004. In a similar vein, consider the developments in transport services juxtaposed against trade in goods and the expansion in ‘producer-driven’ network trade (See Section 5). The value of total trade turnover in goods in 2004 more was more than twice (2.16) as high as its value in 2001, while trade in transport services rose merely 56 percent or slightly more than half of the increase in goods trade. Simultaneously, ‘producer-driven’ network trade, critically dependent on smooth functioning of logistic services blocs, has been the driver of this expansion with its share in total trade turnover increasing from 15 percent in 2000 to 17 percent in 2003. It is hard to imagine that this two-way trade has not involved provision of transport and other services paid or provided by non-resident providers.

While the relationship between growth in goods trade and transport services purchased abroad or sold to foreign contractors is rarely linear, the gap between respective increases is seldom that high. It is even more unusual when they move in opposite direction as trade in goods and trade in transport services did in 1999-2003, with the ratio of the latter to the former falling from 7.5 percent in 1999 to 6.8 percent in 2001 and 4.3 percent in 2003. The ratio slightly rebounded to 4.9 percent in 2004.

Furthermore, the developments in Turkey’s services trade in categories other than travel and, to a lesser extent, transport, in 1999-2004 defy trends observed worldwide. We may safely assume that other service categories lumped together cover, among others, trade in computer, business and other services (see Table 3 above), which is used as a proxy for outsourcing (the contracting of business functions to an outside suppliers). A dramatic decline in other than travel and transport services trade from US$ 5.2 billion in 2000 to US$ 1.2 billion in 2004 indicates that Turkish firms failed to attract offshore services. Countries that have attracted business services are not only the English-speaking ones, although India and Ireland have been very successful. In 2003 Estonia, China and Morocco recorded the largest increase exports of computer and business services—the value of these exports over a previous year increased 70 percent, 68 percent and 61 percent respectively.

Thus, the critical question is what happened to trade in services in other categories than