excess of 10 percent a year.

Similarly, Figure 11 and 12 give a more detailed view of the evolving patterns of service exports from Malaysia. First, Figure 11 shows the export basket in 1995, 2000, 2007 and 2009 by the basic 10 categories available from the Balance of Payments. We note that travel and transport service dominate over 60 percent of Malaysia’s service exports, whereas as the relative share of modern business services progressed around 2000 but did not manage to keep up over the last decade. Hence, Figure 12 gives even a more detailed look at the 74 categories of service exports in 2000 and 2009, whereas the third column reports the change in share of the particular export in total service export basket. Modern services are coded orange and blue is used for traditional services. Several creative, visual services and digital services are not reported by Malaysia however there are signs of progress. The share of computer and information services is approximately 2 percent of service export basket, whereas business services have been declining. In particular, business travel services are continuing to grow very fast.

We now present a preliminary measure of the sophistication in service exports that seeks to mirror the EXPY measure of Hausmann, Hwang, and Rodrik for goods that we employed above.<sup>16</sup> Mishra, Lundstrom and Anand 2011 repeat the same exercise for service exports and shows that there is increasingly a stronger association between moving to more productive modern services and economic growth. We use the IMF Balance of Payments and plot the trend of the sophistication for selected emerging economies in Figure 13. Malaysia maintained a sophistication level in services above that of China until 2003, but since then the Chinese export service sophistication has increased while Malaysia has lagged behind the remaining sample of middle income countries. In contrast, India has emerged as a big player in the delivery of complex services as measured by EXPY in post 2000. India is followed by Singapore and Korea in their level of service export sophistication.

Figure 14 plots individual year scatter plots of the export sophistication index (in logs) with the log level of GDP per-capita for a sample of around 147 countries. The two panels highlight the relative position of Malaysia in 1995-98 and 2007-09 (averages). First, the scatter plots confirm the finding that countries with higher export sophistication have higher income per capita. Second, the two panels demonstrate the stagnancy of Malaysia’s relative sophistication level over time, and its overall position below the global mean in 1995 and 2005. Malaysia has made improvements but lags behind competitive and sophisticated service exporters like Singapore and Korea but ahead of Thailand in the sophistication of service exports. As expected, India stands out as a huge outlier in export of modern services.

The modern service sector has become an important driver of growth in both developed and developing countries. In particular, Figure 15 compares what has happened in some 136 countries between 2000 and 2005 in terms of real GDP growth, shown on the vertical axis and service value added growth, shown on the horizontal axis. Each point represents one country. The positive relationship between the two variables implies that countries with high growth in services also tend to have high overall economic growth or conversely that countries with high overall economic growth have high services growth. One cannot identify causality from a

> 16 This measure is more suggestive than authoritative, however, as we are forced to use approximately ten different service categories as income weights, rather than the few thousand commodities employed in the goods calculation.

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