metadata: authors: 0: author: Francois,Joseph
1: author: Manchin,Miriam
2: author: Tomberger,Patrick
count: World
docna: 0: docna: Services linkages and the value added
            content of trade
docty: Policy Research Working Paper
subtopic: Construction Industry,Common Carriers Industry,Food & Beverage Industry,General Manufacturing,Pulp & Paper Industry,Plastics & Rubber Industry,Transport Economics Policy & Planning,International Trade and Trade Rules,Trade and Services,Business Cycles and Stabilization Policies
teratopic: Transport,Macroeconomics and Economic Growth,International Economics and Trade
abstracts: cdata!: Services trade constitute roughly
            one-third of trade on a value added basis, and much of this
            is concentrated in margin services (transport, logistics)
            linked to trade in goods. However, producer services are
            also part of the value added contained in traded goods. This
            is especially true in high income countries, where services
            account for roughly 70 percent of value added. Working with
            data (a set of global social accounting matrices spanning
            intermittent years from 1992 to 2007) this paper examines
            the services embodied in trade on a value added basis. This
            includes not only the direct and indirect contribution of
            services to value added contained in a given countrys
            exports, but also the extent to which third-country value
            added in services, through intermediate linkages of imported
            goods and services, are also embodied in production and
            trade. This exercise serves to highlight not only the
            importance of non-tradables in trade, but also by extension
            the importance that productivity, foreign affiliates sales,
            and trade and investment in services may hold for
            interdependence and cross-border linkages.
repnme: repnme: Services linkages and the value added
            content of trade
display_title: Services linkages and the value
            added content of trade
listing_relative_url: /research/2013/05/17655249/services-linkages-value-added-content-trade
topicv3: Transport Equipment m1326014 1812,Manufacturing Sectors m1326521 1281,Transport Impact on Trade m1326911 1814,Trade m1326924 698,Trade in Services m1326928 780
publishtoextweb_dt: 2013-05-01T00:00:00Z
historic_topic: Transport,Macroeconomics and Economic Growth,International Economics and Trade
no_of_pages: 36
author_keys: 0: author_key: 430606
1: author_key: 669937
2: author_key: 1200048
model_extractions: WPS6432 Policy Research Working Paper 6432 Services Linkages and the Value Added Content of Trade _Joseph Francois Miriam Manchin Patrick Tomberger_ The World Bank Poverty Reduction and Economic Management Network International Trade Department, May 2013
Policy Research Working Paper 6432

# **Abstract**

Services trade constitute roughly one-third of trade on a value added basis, and much of this is concentrated in margin services (transport, logistics) linked to trade in goods. However, producer services are also part of the value added contained in traded goods. This is especially true in high income countries, where services account for roughly 70 percent of value added. Working with data (a set of global social accounting matrices spanning intermittent years from 1992 to 2007) this paper examines the services embodied in trade on a value added basis. This includes not only the direct and indirect contribution of services to value added contained in a given country’s exports, but also the extent to which third-country value added in services, through intermediate linkages of imported goods and services, are also embodied in production and trade. This exercise serves to highlight not only the importance of nontradables in trade, but also by extension the importance that productivity, foreign affiliates sales, and trade and investment in services may hold for interdependence and cross-border linkages.

This paper is a product of the e International Trade Department, Poverty Reduction and Economic Management Network. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank. org. The authors may be contacted at joseph.francois@jku.at, m.manchin@ucl.ac.uk and Patrick.Tomberger@jku.at.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# **Services Linkages and the Value Added Content of Trade**<sup>_∗_</sup>

Joseph Francois Miriam Manchin Patrick Tomberger May 1, 2013

**Keywords:** Trade in Services, Value Added and Trade, Input-Output **JEL codes:** F10 **Sector Board:** Economic Policy

> _∗_ The authors, Joseph Francois (Johannes Kepler Universit ̈at Linz and CEPR), Miriam Manchin (University College London), and Patrick Tomberger (Johannes Kepler Universit ̈at Linz), can be reached respectively at joseph.francois@jku.at, m.manchin@ucl.ac.uk and Patrick.Tomberger@jku.at. This work is part of a wider project by the World Bank’s International Trade Department to offer a framework and analytical instruments that can be used to undertake a systematic assessment of a country’s competitiveness and trade performance in the services and goods sector. The applications to policy analysis of this work are discussed more widely in the forthcoming Services Trade and Competitiveness Diagnostics Toolkit (Saez et al. forthcoming). The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not represent the official views of their respective institutions, or of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
# **1 Introduction**

According to the WTO, the global value of cross-border services exports in 2007 was $3 trillion, or some 20 percent of world trade in goods and services. However, the share of services rises to almost 50 percent if transactions are measured in terms of direct and indirect value added content - that is, if trade is measured in terms of the value that is added by processing of imported components into final products for export as opposed to measuring trade flows on the basis of the gross value of goods crossing the border (Escaith, 2008). If we add in the sales of services by foreign affiliates of multinational firms, then the value of trade in services rises further. Data for 15 OECD countries puts the value of such sales at some $1.5 trillion in 2007 (WTO, 2009).

While the expanding economic importance of services has not gone unnoticed, traded services have not figured prominently in the economic growth and development literature, and have been downplayed in the input- output and CGE literature. Traditional international economics textbooks tend to assume (assert) that services are largely non-tradable. This started to change with the emergence of services on the international policy agenda in the 1980s, in part as a consequence of U.S. proposals to negotiate multilateral rules on policies affecting trade and investment in services.<sup>1</sup> Productivity trends in services have been a basic determinant of recent growth in the OECD. Working with the EU-KLEMS database, Inklaar, Timmer, and van Ark (2007) find rising investment in ICT (information and communications technology), as well as growth in human capital contributed, were both important drivers of labor productivity in commercial services in Europe, though there are marked differences across countries and sectors. How well this translated into overall productivity growth helps explain overall differences in performance across Europe. Similarly, Triplett and Bosworth (2004) find that in the United States productivity growth in services has been critical to overall US growth since the early 1990s. The literature using input-output analysis to study services in individual countries

> 1See Francois and Hoekman (2010) for an overview. This is a basic point to be taken from the theoretical literature on trade in services, including Markusen (1989), Francois (1988, 1990), van Marrewijk et al (1997), and Markusen Rutherford and Tarr (2005).

2
reinforce the messages from the recent growth econometrics literature. For example, Francois and Reinert (1997) note that exports become increasingly producer (business) service intensive (in terms of combined direct and indirect linkages) with increasing industrialization, while Francois and Woerz (2008), mapping measures of Leontief-based direct and indirect service intensity to production and productivity indicators, find that service sector openness has boosted the competitiveness of more technology and skill intensive industry in the OECD, at the expense of less ICT and skill intensive sectors. Robinson et al. (2002) stress indirect effects from services sector trade liberalization on the efficiency and output of other sectors in the economy, working through inter-industry input-output relations induced by imports of high-quality services.<sup>2</sup> A basic message of this literature is that, at least for the OECD, the service sector is critical to the overall cost structure and recent performance of industrial economies.

In this paper, we work with a panel of global input-output data (a set of global social accounting matrices spanning intermittent years from 1992 to 2007) that covers not only key OECD economies, but also a range of developing countries as well. Our use of this 15 year panel of input output data sets what we do apart from the existing literature on services linkages, as we are able to trace more long-run patterns. Working with these data, we examine the structure of services embodied in trade on a value added basis. This includes not only the direct and indirect contribution of services to value added contained in a given country’s exports, but also the extent to which third-country value added in services, through intermediate linkages of imported goods and services, are also embodied in production and trade. This exercise serves to highlight the importance of non-tradables in trade, and how this has evolved since the early 1990s. It also reinforces the importance of nontraded, domestic activities for the competitiveness of goods on export markets. Not surprisingly, the ratio of value added to gross trade values has been falling for goods since 1992, consistent with the now common observation that production chains for goods have become more complex. However, it turns out that this same pattern is also seen for services. Yet there is a marked difference with respect to goods. In goods sectors, value added, even when we account for linkages and

> 2 Also see Kravis, Heston and Summers (1983), Inman (1985), Park and Chan (1989) and Uno (1989).

3
indirect exports, is far less than the gross value of exports. This is because vertical chains of production mean the same value added is exported several times before final sale. In services, however, indirect exports (forward linkages) are far more important. Indeed, they are so important that indirect exports, on a value added basis, are consistently greater than the value of gross exports. However, as service tradability has increased since the early 1990s, for some service sectors this ratio is falling, though it is still far above the pattern observed for goods.

We have organized the paper as follows. Section 2 discusses concepts for measurement of value added intensity, as well as our data. Section 3 focuses on how services trade has evolved globally, and how this differs from goods. Section 4 then discusses data issues at a country level. This is followed by closing remarks in Section 5.

# **2 Concepts and Data**

We work with multiple versions of the GTAP database, benchmarked to 1992, 1995, 1997, 2001, 2004, and 2007. It represents a form of social accounting data – a variation on the social accounting matrix or SAM – where incomes or receipts are shown in the rows of the SAM while expenditures or outlays are shown in the columns. The basic structure of the GTAP dataset is well documented (see McDougall 2001, and McDougall et al 2005). It is produced by a consortium that includes the World Bank, US International Trade Commission, World Trade Organization, OECD, UNCTAD, UNFAO and a number of universities and research institutes. It represents a massive combined effort to produce a shared public good – a database of national intput-output tables, organized as social accounting data and linked to each other through trade and investment flows. The project itself, based as Purdue University, has been a massive undertaking. (Hertel 2011). It stands as a critical, open source input to applied policy modeling ranking from climate change to regional trade agreements and food security. Over time, the dataset has grown to include more countries and more sectors. To maintain backward compatibility, we start with the 1992 structure of regions and sectors, and carry this forward in aggregation of more recent iterations of the dataset. This structure is detailed in Table 1 below.

4
Table 1: Regions and Sectors

|Regions||Sectors||
|---|---|---|---|
|aus|Australia|af|Agr, Forestry, Fisheries|
|nzl|New Zealand|pfd|Processed Foods|
|jpn|Japan|egy|Energy Extraction|
|kor|Korea|omn|Minerals nec|
|idn|Indonesia|~~b~~<br>t|Beverages and Tobacco Products|
|mys|Malaysia|tex|Textiles|
|phl|Philippines|wap|Wearing Apparel|
|sgp|Singapore|lea|Leather Products|
|tha|Thailand|lum|Wood Products|
|chn|China|ppp|Paper Products, Publishing|
|hkg|Hong Kong|crp|Chemical, Rubber, Plastic Products|
|twn|Taiwan|nmm|Mineral Products nec|
|ind|India|~~i~~<br>s|Ferrous Metals|
|ras|Rest of South Asia|nfm|Metals nec|
|can|Canada|fmp|Metal Products|
|usa|United States|trn|Transport Equipment|
|mex|Mexico|mac|Machinery and Equipment nec|
|cam|Central America, Caribbean|omf|Manufactures nec|
|arg|Argentina|egw|Electricity, Gas, Water|
|bra|Brazil|cns|Construction|
|chl|Chile|~~t~~<br>~~t~~|Trade and Transport Services|
|rsm|Rest of South America|osp|Other Private Services|
|e12|European Community 12|osg|PubAdmin/Defence/Health/Educat|
|ec3|Austria, Finland, Sweden|dwe|Dwellings|
|eea|new EU12 Members|||
|fsu|Former Soviet Union|||
|mea|Rest of Middle East|||
|ssa|Rest of Sub-Saharan Africa|||
|row|Rest of World|||

5
While national service flows are based on national input-output data, the data on services trade flows come from a number of sources. The OECD, Eurostat and the UN all provide data in some form on bilateral services trade flows (both imports and exports), by partners and BOPs (balance of payments sectors) for up to 24 sectors and subsectors. The most comprehensive coverage of reporting countries among the three sources is UN, which at present count provides data on roughly 190 reporters. Eurostat and OECD provide data for a more limited number of reporters, though with more sector detail than the UN. Eurostat covers 27 EU members plus Croatia, Iceland, Japan, Norway, Turkey, Switzerland, and USA, while the OECD covers 28 countries (all the OECD members apart from Chile, Iceland, Israel, Slovenia, and Switzerland). Time coverage is the deepest with EUROSTA. IMF data cover almost as many countries as the UN, and for a longer time span, but only for trade with world.<sup>3</sup> Within GTAP, the efforts to reconcile services balance of payments data with national input-ouput data are well documented, and reflect innovative approaches based on information theory and entropy methods to flesh out the pattern of trade enough to allow construction of a global dataset for estimating cross-border trade in services. (See MacDougall and Hagemejer 2005, and Van Leeuwen and Lejour 2006). For the transport sector, reconciliation of trade data is explicitly linked to the parallel reconciliation of data on trade in goods, as services play a critical role in bridging the gap between reported export flows for goods, in one country’s national accounts data, and reported import flows in another country’s data (Gelhar 1996).

The structure of the data provides a comprehensive and consistent record of national income accounting relationships between different sectors and regions. It is based on a fundamental, general equilibrium principle of economics – every income (receipt) has a corresponding expenditure (outlay). The strength of this framework is that it provides a comprehensive and consistent record of the interrelationships of an economy, including intermediate and final demand linkages. For our purposes, it offers the advantage of linking consumption and external trade patterns explicitly to the inter-industry structure of intermediate demand. This allows for a fuller analysis than is possible when working strictly with input-output tables.

> 3See Francois and Pindyuk (2010).

6
To generate these values, we begin by denoting a representation of intermediate and demands as follows: In equation (1), the term **Y** denotes a final final demand vector, **Z** denotes a gross output vector, and **A** denotes a matrix of intermediate use coefficients. Equation (1) therefore defines final output with respect to intermediate input requirements. With some manipulation we arrive at the Leontief inverse matrix, also known as the multiplier matrix **M** .

The multiplier matrix **M** measures the inputs contained in a unit of final output. In particular, if we assign the sector indexes _i, j_ to the **A** and **M** matrices, then a representative element of the **M** matrix _Mij_ gives the direct and indirect inputs (and thus the sector _i_ receipts) linked to each unit (for example each dollar) of sector _j_ receipts in the data.<sup>4</sup> This implies real production activities measured by value of output. For our purposes, it provides a means to trace, through these income flows, the flow of gross activity and value added from intermediate to final goods and services, ostensibly across borders as well as sectors. Because linkages will vary by industry, each industry will be characterized by different multipliers. To focus on value added, we note first that in terms of gross output values **Z** , some share of this involves value added within each sector. We define **B**<sup>**ˆ**</sup> as the diagonal matrix indexed over _i, j_ with diagonal elements equal to the value added shares of output **Z** . We then use **M** to provide a breakdown of the flow of value added across activities in the form of the matrix **V** .

Similar to the Leontief inverse matrix itself, the **V** matrix identifies the inputs of value added in each sector related to a unit of final demand. If we multiply **V** by

> 4In multiplier analysis with fixed input coefficients, these values also represent fixed unit input requirements in value terms, though of course in CGE models one can allow for these coefficients to be endogenous.

7
the diagonal matrix **Y**<sup>**ˆ**</sup> whose non-zero elements are the vector of final outputs, the matrix yields a breakdown of economy-wide value added (the primary component of Gross National Product on a source basis). Similarly, if we multiply **V** by the diagonal matrix **X**<sup>**ˆ**</sup> whose non-zero elements are the national export vector, we can recover the value added content of exports **X** (both direct and indirect).

The **G** matrix and the **H** matrix give us the set of linkages, both direct and indirect, between value added across sectors.

# **3 Global patterns of production and trade**

We start with the pattern of global production and trade. In this case, we have collapsed all regions to a single region, keeping the sectors defined in Table 1. We also preserve the flow of trade (exports and imports) for this aggregate world, so that we can examine at a global level the properties of trade flows in terms of direct and indirect value added (considering forward linkages), and the share of services in the cost of traded goods. We will then carry forward the same approach, examining relative gross and value added flows, and the relevance of linkages to specific sectors, at individual country level in the subsequent section.

We start with the ration of total value added in exports, relative to the gross value of exports. This is reported in Table 2. It corresponds to ratios of the sector totals for **X**<sup>**ˆ**</sup> and **H** , _hj_ : _xj_ . For the world as a whole, there has been a discernible drop in the value added content of exports, relative to gross exports, since 1992. This fits with the theme, common to the value chain literature and to explanations of the collapse in trade during the Great Recession, that the global subdivision of labor, and the resulting increased roundaboutness of production, means we are double counting value added when we look at gross trade values. As production fragments vertically along geographic lines, this should lead to a fall in this ratio.

8
Table 2: **Total value added in exports relative to gross value of exports**

||1992|1995|1997|2001|2004|2007|
|---|---|---|---|---|---|---|
|Total|0.830|0.783|0.748|0.735|0.723|0.711|
|Public Services|1.569|1.139|1.463|1.433|1.390|1.390|
|Commercial Services|2.125|2.666|2.168|1.985|2.072|1.873|
|Trade and Transport|1.174|1.161|1.221|1.234|1.068|1.028|
|Construction|2.957|1.976|1.482|1.833|1.863|1.472|
|Other Manufactures|0.662|0.625|0.607|0.595|0.620|0.623|
|Machinery|0.494|0.476|0.430|0.416|0.392|0.395|
|Transport Equipment|0.405|0.374|0.347|0.339|0.323|0.323|
|Metals|0.828|0.702|0.660|0.645|0.642|0.553|
|Chemicals|0.591|0.604|0.543|0.515|0.470|0.449|
|Textiles, clothing, footwear|0.427|0.417|0.412|0.426|0.399|0.407|
|Energy and mining|1.108|1.077|0.925|1.017|0.949|0.873|
|Agriculture and processed foods|0.781|0.741|0.710|0.753|0.744|0.756|

There are identifiable differences across sectors. On the low end, trade in machinery, transport equipment, and textiles and clothing all have value added contents less than 41% of the gross trade values as of 2007. These drops are between 2 and 10 percent points since 1992. To put this into perspective this also means that for every $100 in gross exports flows globally in machinery in 1992, there was $49.40 in value added. By 2007, this had dropped to $39.50, a drop of 20 percent in the value added content of trade in this sector. For transport equipment, the drop is from $40.50 to $32.30, or a 20 percent drop in the value added content of trade.

The pattern is quite different when we focus on services sectors. A first point to note in Table 2 is that the ratio of value added to gross exports is consistently greater than 1. What this means is that most exports in services, on a value added basis, are embodied in exports of goods. Direct exports in services are small, globally, relative to indirect of embodied exports. Another point to note is that this ratio has not really changed since the early 1990s. In other words, though trade in services has grown rapidly, so has trade in goods. With the exception of construction, where there has been substantial growth in direct exports, the basic patten is one of embodied exports dominating direct exports, and relative stability in this pattern in the 1992-2007 period.

We turn next to the basic composition of trade for the world as a whole, both in gross value terms and adjusted to measure instead the value added content of trade. We report these in Tables 3, 4, 5, and 6. The basic pattern is again one of stability 9
Table 3: **Sector shares of gross exports – World Trade**

||1992|1995|1997|2001|2004|2007|
|---|---|---|---|---|---|---|
|Agr, Forestry, Fisheries|0.041|0.034|0.029|0.026|0.023|0.021|
|Processed Foods|0.031|0.042|0.038|0.035|0.036|0.034|
|Energy Extraction|0.079|0.053|0.062|0.058|0.086|0.114|
|Minerals nec|0.017|0.014|0.006|0.005|0.010|0.013|
|Beverages and Tobacco Products|0.008|0.007|0.008|0.007|0.007|0.007|
|Textiles|0.027|0.026|0.030|0.028|0.025|0.020|
|Wearing Apparel|0.028|0.027|0.022|0.022|0.019|0.016|
|Leather Products|0.014|0.014|0.012|0.013|0.010|0.009|
|Wood Products|0.016|0.017|0.017|0.017|0.016|0.015|
|Paper Products, Publishing|0.022|0.025|0.021|0.021|0.018|0.016|
|Chemical, Rubber, Plastic Products|0.082|0.097|0.093|0.099|0.111|0.109|
|Mineral Products nec|0.009|0.011|0.016|0.016|0.010|0.010|
|Ferrous Metals|0.022|0.028|0.023|0.020|0.024|0.027|
|Metals nec|0.016|0.018|0.024|0.022|0.024|0.031|
|Metal Products|0.016|0.018|0.018|0.018|0.018|0.019|
|Transport Equipment|0.090|0.090|0.095|0.103|0.107|0.099|
|Machinery and Equipment nec|0.219|0.242|0.257|0.257|0.235|0.214|
|Manufactures nec|0.026|0.023|0.022|0.026|0.017|0.017|
|Electricity, Gas, Water|0.001|0.001|0.004|0.004|0.004|0.005|
|Construction|0.002|0.004|0.006|0.004|0.004|0.006|
|Trade and Transport Services|0.147|0.129|0.111|0.103|0.098|0.096|
|Other Commercial Services|0.080|0.056|0.073|0.082|0.085|0.092|
|Public Services|0.007|0.023|0.015|0.015|0.014|0.012|
|Dwellings|0.000|0.000|0.000|0.000|0.000|0.000|
|Total|1.000|1.000|1.000|1.000|1.000|1.000|

10
in the relative importance of services trade globally, whether measured on a gross or net basis. On the goods side, chemicals and metals account for an increasing share of total trade in value added, while the share devoted to transport and trade services has fallen consistently. Interestingly, public services (including education and health care) account for a rising share of both gross trade values and embodied trade. Where one has more detailed data on these sectors (from EU-KLEMS for example), this may point to a path for promising research quantifying the impact of rising health costs have had on cost structures as reflected in the value added content of trade.

Table 4: **Sector shares of direct value added exports – World Trade**

||1992|1995|1997|2001|2004|2007|
|---|---|---|---|---|---|---|
|Agr, Forestry, Fisheries|0.050|0.046|0.039|0.036|0.034|0.031|
|Processed Foods|0.017|0.026|0.025|0.024|0.026|0.024|
|Energy Extraction|0.077|0.061|0.075|0.069|0.119|0.153|
|Minerals nec|0.019|0.016|0.007|0.006|0.013|0.017|
|Beverages and Tobacco Products|0.007|0.007|0.008|0.007|0.007|0.006|
|Textiles|0.018|0.019|0.022|0.021|0.020|0.015|
|Wearing Apparel|0.019|0.020|0.018|0.019|0.015|0.012|
|Leather Products|0.010|0.010|0.009|0.009|0.007|0.006|
|Wood Products|0.014|0.015|0.014|0.015|0.014|0.013|
|Paper Products, Publishing|0.021|0.024|0.021|0.020|0.019|0.016|
|Chemical, Rubber, Plastic Products|0.058|0.083|0.076|0.081|0.095|0.090|
|Mineral Products nec|0.008|0.011|0.016|0.016|0.010|0.010|
|Ferrous Metals|0.013|0.019|0.015|0.012|0.016|0.018|
|Metals nec|0.011|0.012|0.016|0.014|0.017|0.022|
|Metal Products|0.015|0.017|0.017|0.017|0.019|0.019|
|Transport Equipment|0.075|0.069|0.066|0.072|0.072|0.066|
|Machinery and Equipment nec|0.203|0.231|0.231|0.230|0.194|0.176|
|Manufactures nec|0.022|0.020|0.019|0.024|0.017|0.017|
|Electricity, Gas, Water|0.001|0.002|0.005|0.005|0.005|0.006|
|Construction|0.002|0.004|0.006|0.004|0.005|0.007|
|Trade and Transport Services|0.210|0.179|0.158|0.143|0.117|0.111|
|Other Commercial Services|0.117|0.073|0.111|0.125|0.134|0.143|
|Public Services|0.011|0.036|0.028|0.029|0.026|0.023|
|Dwellings|0.000|0.000|0.000|0.000|0.000|0.000|
|total|1.000|1.000|1.000|1.000|1.000|1.000|

While most of the discussion in this paper is focused on forward linkages, in Table 6 we have focused instead on backward linkages. In other words, when we focus on actual exports of metals or transport equipment or chemicals, and recognize that these embody value added from upstream activities, what is the value added 11
Table 5: **Sector shares of total value added exports – World Trade Direct and indirect exports through forward linkages**

||1992|1995|1997|2001|2004|2007|
|---|---|---|---|---|---|---|
|Agr, Forestry, Fisheries|0.055|0.053|0.046|0.045|0.042|0.041|
|Processed Foods|0.015|0.021|0.020|0.019|0.020|0.019|
|Energy Extraction|0.092|0.058|0.061|0.060|0.093|0.118|
|Minerals nec|0.015|0.013|0.009|0.008|0.013|0.016|
|Beverages and Tobacco Products|0.005|0.005|0.006|0.006|0.005|0.005|
|Textiles|0.017|0.018|0.019|0.020|0.016|0.014|
|Wearing Apparel|0.012|0.012|0.011|0.011|0.008|0.007|
|Leather Products|0.006|0.007|0.006|0.006|0.005|0.004|
|Wood Products|0.011|0.011|0.011|0.011|0.011|0.010|
|Paper Products, Publishing|0.027|0.027|0.025|0.024|0.021|0.019|
|Chemical, Rubber, Plastic Products|0.058|0.075|0.067|0.069|0.072|0.069|
|Mineral Products nec|0.009|0.011|0.015|0.015|0.010|0.010|
|Ferrous Metals|0.020|0.023|0.021|0.018|0.020|0.020|
|Metals nec|0.012|0.012|0.014|0.013|0.014|0.016|
|Metal Products|0.022|0.022|0.022|0.022|0.025|0.024|
|Transport Equipment|0.044|0.043|0.044|0.048|0.048|0.045|
|Machinery and Equipment nec|0.131|0.147|0.148|0.146|0.128|0.119|
|Manufactures nec|0.013|0.014|0.014|0.017|0.012|0.012|
|Electricity, Gas, Water|0.024|0.027|0.024|0.031|0.028|0.029|
|Construction|0.007|0.010|0.011|0.010|0.012|0.012|
|Trade and Transport Services|0.207|0.191|0.181|0.173|0.145|0.139|
|Other Commercial Services|0.177|0.162|0.196|0.197|0.223|0.223|
|Public Services|0.013|0.033|0.030|0.029|0.027|0.024|
|Dwellings|0.006|0.006|0.003|0.003|0.003|0.003|
|Total|1.000|1.000|1.000|1.000|1.000|1.000|

12
content of exports, on a sector basis? The most important sector is machinery at 19.4 percent, a share that has slightly decreased from 1992-2007. Collectively, machinery, transport equipment, metals, and chemicals account for 45 percent of all exports, on a value added basis. If we compare the values in Table 5 with those in Table 6, it is clear that a large share of total value added, in the goods sectors that dominate trade on a gross value basis, comes from service inputs to manufacturing.<sup>5</sup> Table 6: **Sector shares of total value added exports – World Trade Direct and indirect exports through backward linkages**

||1992|1995|1997|2001|2004|2007|
|---|---|---|---|---|---|---|
|Agr, Forestry, Fisheries|0.044|0.039|0.033|0.030|0.027|0.025|
|Processed Foods|0.032|0.043|0.039|0.036|0.038|0.037|
|Energy Extraction|0.078|0.055|0.062|0.061|0.092|0.121|
|Minerals nec|0.018|0.015|0.006|0.006|0.011|0.015|
|Beverages and Tobacco Products|0.009|0.008|0.008|0.008|0.008|0.007|
|Textiles|0.024|0.024|0.027|0.025|0.023|0.019|
|Wearing Apparel|0.023|0.023|0.020|0.021|0.017|0.016|
|Leather Products|0.012|0.013|0.011|0.012|0.009|0.009|
|Wood Products|0.017|0.018|0.017|0.017|0.017|0.015|
|Paper Products, Publishing|0.023|0.026|0.022|0.022|0.020|0.017|
|Chemical, Rubber, Plastic Products|0.077|0.091|0.085|0.091|0.102|0.098|
|Mineral Products nec|0.009|0.011|0.017|0.017|0.011|0.010|
|Ferrous Metals|0.021|0.026|0.022|0.019|0.022|0.025|
|Metals nec|0.014|0.016|0.022|0.020|0.022|0.027|
|Metal Products|0.016|0.018|0.018|0.018|0.019|0.019|
|Transport Equipment|0.089|0.084|0.088|0.095|0.095|0.087|
|Machinery and Equipment nec|0.208|0.229|0.239|0.234|0.214|0.194|
|Manufactures nec|0.024|0.022|0.021|0.025|0.017|0.017|
|Electricity, Gas, Water|0.001|0.002|0.004|0.004|0.004|0.006|
|Construction|0.002|0.004|0.006|0.004|0.005|0.007|
|Trade and Transport Services|0.161|0.144|0.126|0.116|0.106|0.101|
|Other Commercial Services|0.090|0.065|0.087|0.098|0.104|0.111|
|Public Services|0.008|0.026|0.019|0.019|0.017|0.016|
|Dwellings|0.000|0.000|0.000|0.000|0.000|0.000|
|Total|1.000|1.000|1.000|1.000|1.000|1.000|

Finally, before turning to individual countries and regions, we look at the import intensity of cost structures across industry. Strictly speaking, this is not a measure of value added contents, but at this stage we have calculated the share of imported inputs in gross costs across sectors. This involves a variation of equation (5), adjusted to track import costs downstream rather than domestic value added. What this yields is a measure of the extent to which individual sectors have become

> 5It is also the case that we should expect, in a world without f.o.b and c.i.f margins and trade taxes, that values in Tables 6 and 3 ought to be the same.

13
increasingly globalized in terms of costs structures – in other words the extent to which linkages are crossing borders.<sup>6</sup> The rise in direct imports as share of total costs, from Table 7, stands out across manufacturing, though it is far less important for services. Services remain largely non-traded on a cost basis, with imports representing one-third to one-quarter of the share we see for goods production.<sup>7</sup> Table 7: **Direct imports as a share of gross costs**

||1992|1995|1997|2001|2004|2007|
|---|---|---|---|---|---|---|
|Agr, Forestry, Fisheries|0.032|0.046|0.044|0.046|0.054|0.055|
|Processed Foods|0.079|0.096|0.096|0.091|0.091|0.092|
|Energy Extraction|0.099|0.151|0.249|0.243|0.267|0.274|
|Minerals nec|0.057|0.094|0.063|0.063|0.079|0.084|
|Beverages and Tobacco Products|0.064|0.076|0.077|0.078|0.099|0.101|
|Textiles|0.121|0.132|0.155|0.155|0.161|0.147|
|Wearing Apparel|0.128|0.132|0.151|0.149|0.171|0.154|
|Leather Products|0.129|0.168|0.152|0.163|0.148|0.139|
|Wood Products|0.080|0.097|0.110|0.110|0.117|0.117|
|Paper Products, Publishing|0.070|0.105|0.096|0.096|0.091|0.095|
|Chemical, Rubber, Plastic Products|0.125|0.144|0.155|0.151|0.165|0.176|
|Mineral Products nec|0.058|0.069|0.083|0.082|0.098|0.109|
|Ferrous Metals|0.111|0.136|0.121|0.112|0.125|0.151|
|Metals nec|0.149|0.202|0.182|0.169|0.193|0.238|
|Metal Products|0.064|0.089|0.107|0.107|0.122|0.142|
|Transport Equipment|0.107|0.145|0.159|0.165|0.190|0.198|
|Machinery and Equipment nec|0.103|0.133|0.174|0.187|0.191|0.195|
|Manufactures nec|0.105|0.120|0.141|0.154|0.145|0.148|
|Electricity, Gas, Water|0.033|0.058|0.068|0.065|0.077|0.097|
|Construction|0.049|0.053|0.066|0.069|0.082|0.090|
|Trade and Transport Services|0.037|0.043|0.055|0.051|0.065|0.077|
|Other Commercial Services|0.022|0.030|0.031|0.035|0.041|0.048|
|Public Services|0.023|0.038|0.035|0.032|0.034|0.037|
|Dwellings|0.005|0.010|0.005|0.004|0.005|0.009|

# **4 Services at country and region level**

We now turn to an analysis of individual countries and regions. This means that rather than working with globally aggregated social accounting data, we have now subdivided all flows to allow indexing by region. We will not explore bilateral

> 6As has been noted elsewhere, the split of bilateral trade into intermediate and final use in GTAP is somewhat crude. In our view this is less of a problem here, where we focus on aggregate trade with world.

> 7While not explored here, there is also the question of the origin of value added for specific types of inputs across sectors. Francois and Woerz (2008) find that rising shares for imported service inputs, on a gross value basis, have predictable effects across sectors, depending on which are more of less service intensive in an input basis.

14
Table 8: **Total of direct and indirect imports as a share of gross costs**

||1992|1995|1997|2001|2004|2007|
|---|---|---|---|---|---|---|
|Agr, Forestry, Fisheries|0.077|0.103|0.097|0.100|0.114|0.121|
|Processed Foods|0.137|0.157|0.156|0.153|0.150|0.153|
|Energy Extraction|0.341|0.333|0.530|0.562|0.689|0.771|
|Minerals nec|0.083|0.128|0.092|0.094|0.113|0.121|
|Beverages and Tobacco Products|0.071|0.085|0.088|0.092|0.113|0.116|
|Textiles|0.217|0.243|0.283|0.298|0.287|0.274|
|Wearing Apparel|0.147|0.147|0.168|0.168|0.189|0.169|
|Leather Products|0.152|0.201|0.189|0.201|0.188|0.179|
|Wood Products|0.107|0.127|0.148|0.152|0.169|0.169|
|Paper Products, Publishing|0.142|0.197|0.173|0.174|0.158|0.163|
|Chemical, Rubber, Plastic Prods|0.356|0.401|0.403|0.395|0.398|0.427|
|Mineral Products nec|0.083|0.101|0.123|0.125|0.139|0.155|
|Ferrous Metals|0.229|0.264|0.248|0.219|0.234|0.278|
|Metals nec|0.225|0.294|0.269|0.251|0.277|0.339|
|Metal Products|0.106|0.148|0.169|0.172|0.198|0.227|
|Transport Equipment|0.130|0.187|0.223|0.231|0.268|0.279|
|Machinery and Equipment nec|0.183|0.236|0.311|0.346|0.359|0.367|
|Manufactures nec|0.118|0.145|0.175|0.189|0.175|0.180|
|Electricity, Gas, Water|0.071|0.131|0.157|0.148|0.168|0.215|
|Construction|0.068|0.078|0.096|0.100|0.126|0.136|
|Trade and Transport Services|0.163|0.179|0.235|0.226|0.273|0.315|
|Other Commercial Services|0.103|0.160|0.159|0.176|0.225|0.248|
|Public Services|0.028|0.052|0.048|0.044|0.044|0.047|
|Dwellings|0.005|0.011|0.005|0.004|0.005|0.010|

15
linkages pertaining to services here but will instead focus on individual subsets of our social accounts data, region by region, with external accounts in each case aggregated to a rest of world.

# **4.1 all countries**

Table 9 presents a cross-section, for year 2007, for services shares of exports on a gross value basis, direct value added, and total domestic value added. Two patterns stand out on this basis. One is that certain economies (the United States, Hong Kong, Singapore, and Europe) stand out as commercial services exporters, while lower income countries, at least in terms of direct exports, are lower down the ladder of relative importance for service exports. One exception is India, which has the highest share of commercial service exports on a gross basis among the developing nations, even surpassing the high income countries. Furthermore, on a value added basis, service exports are often much more important than on a gross basis. For high income resource abundant countries (Australia, Canada, New Zealand), there is a similar shift in the share from between 8.4 and 9.3 percent on a gross value basis to between 11.7 and 14.6 on a direct value added basis. For the United States, commercial service exports accounted for more than 20 percent of direct value added exports. For Hong Kong, this is a third. Again India stands out as an outlier with commercial service exports accounting for almost 40 percent on a direct value added basis.

We also calculated a revealed comparative advantage index based on forward linkages. These indexes are based on the sector share of value added exports. Table 10 presents these indexes for each region for the year 2007. The figures are in line with those presented in Table 9. Again the United States, Hong Kong, Singapore and Europe, but also India, stand out with their comparative advantage in commercial services.

# **4.2 Brazil, China, Korea, the United States**

We will next look at how value added structures, and services linkage to trade, have evolved over time. Our dataset is actually quite rich, and will allow (with some adjustments to bilateral allocation of goods trade) to study of cross border linkages 16
Table 9: **Services share of exports in 2007 (excluding trade and transport services)**

||gross export shares|direct domestic<br>value added|total domestic<br>value added|
|---|---|---|---|
|Australia|0.088|0.117|0.288|
|New Zealand|0.084|0.137|0.273|
|Japan|0.045|0.073|0.229|
|Korea|0.062|0.112|0.234|
|Indonesia|0.025|0.033|0.078|
|Malaysia|0.061|0.100|0.176|
|Philippines|0.058|0.098|0.141|
|Singapore|0.147|0.213|0.285|
|Thailand|0.040|0.062|0.141|
|China|0.028|0.060|0.160|
|Hong Kong|0.210|0.337|0.318|
|Taiwan|0.044|0.090|0.225|
|India|0.227|0.384|0.364|
|Rest of South Asia|0.049|0.081|0.149|
|Canada|0.093|0.146|0.251|
|United States|0.147|0.206|0.298|
|Mexico|0.038|0.068|0.186|
|Central America, Caribbean|0.104|0.171|0.230|
|Argentina|0.075|0.128|0.209|
|Brazil|0.074|0.130|0.232|
|Chile|0.026|0.037|0.222|
|Rest of South America|0.036|0.050|0.149|
|EU12|0.143|0.221|0.371|
|EU3|0.117|0.197|0.362|
|Central European Associates|0.096|0.166|0.293|
|Former Soviet Union|0.077|0.096|0.196|
|Rest of Middle East|0.008|0.013|0.104|
|Rest of Sub-Saharan Africa|0.051|0.056|0.157|
|Rest of World|0.103|0.123|0.205|

17
Table 10: **Relative intensity indices in 2007 (based on forward linkages)**

||Primary|Text./<br>Cloths|Machin.|oth.<br>Mfc.|Trade/<br>Transp.|Com.<br>Ser.|Pub.<br>Ser.|
|---|---|---|---|---|---|---|---|
|Australia|0.406|0.005|0.038|0.107|0.128|0.288|0.028|
|New Zealand|0.315|0.018|0.044|0.145|0.183|0.273|0.022|
|Japan|0.015|0.007|0.322|0.176|0.187|0.229|0.064|
|Korea|0.038|0.021|0.348|0.165|0.148|0.234|0.046|
|Indonesia|0.502|0.069|0.065|0.179|0.101|0.078|0.006|
|Malaysia|0.255|0.009|0.215|0.154|0.188|0.176|0.005|
|Philippines|0.118|0.035|0.434|0.103|0.162|0.141|0.007|
|Singapore|0.019|0.003|0.230|0.164|0.280|0.285|0.019|
|Thailand|0.158|0.044|0.224|0.199|0.223|0.141|0.011|
|China|0.184|0.087|0.172|0.255|0.128|0.160|0.013|
|Hong Kong|0.032|0.033|0.038|0.040|0.538|0.318|0.001|
|Taiwan|0.023|0.028|0.342|0.198|0.162|0.225|0.022|
|India|0.197|0.050|0.036|0.150|0.193|0.364|0.010|
|Rest of South Asia|0.207|0.286|0.011|0.044|0.236|0.149|0.068|
|Canada|0.255|0.007|0.145|0.206|0.114|0.251|0.022|
|United States|0.082|0.010|0.196|0.200|0.166|0.298|0.048|
|Mexico|0.176|0.019|0.314|0.136|0.165|0.186|0.004|
|Central America, Carib.|0.264|0.065|0.072|0.083|0.253|0.230|0.033|
|Argentina|0.466|0.012|0.056|0.104|0.131|0.209|0.022|
|Brazil|0.305|0.020|0.090|0.183|0.159|0.232|0.011|
|Chile|0.359|0.003|0.014|0.267|0.128|0.222|0.007|
|Rest of South America|0.595|0.020|0.026|0.117|0.084|0.149|0.009|
|EU12|0.090|0.023|0.180|0.208|0.106|0.371|0.022|
|EU3|0.065|0.013|0.191|0.248|0.102|0.362|0.020|
|Central European EU|0.101|0.037|0.223|0.245|0.084|0.293|0.017|
|Former Soviet Union|0.480|0.004|0.030|0.092|0.190|0.196|0.007|
|Rest of Middle East|0.635|0.022|0.062|0.089|0.079|0.104|0.010|
|Rest of Sub-Sah. Africa|0.485|0.012|0.023|0.155|0.150|0.157|0.017|
|Rest of World|0.421|0.020|0.059|0.108|0.161|0.205|0.026|

18
and how they have evolved since the early 1990s. There are also striking changes in individual countries over time. Singapore shows a dramatic rise in service intensity, while China’s trade explodes in the direction of manufacturing, from 13.7 percent on a gross value basis in 1992 to almost 40 percent in 2007. In Tables 11 to 19, we focus on just four countries: Brazil, China, Korea, and the United States.

Table 11 provides a broad overview of services exports on a gross and value added basis for Brazil, China, Korea, and the United States. For the United States, there was some rise between 1992 and 2007, with a period of stagnation between 2001 and 2004, on a gross value basis. However, this is likely because of the rising levels of gross trade relative to value added in manufacturing sectors, as shown in Table 2. There has not been the same rise in roundaboutness for services, and as such gross trade data understate the importance of services exports to the United States. When we focus instead on direct value added content, services (excluding trade and transport) accounted for 28.4 percent of exports in 2007, up from 17.2 percent in 1992. China has seen a dramatic drop in share terms, but as can be seen in Figure 1 this is not something linked to the level of services exports per se, but rather to the very dramatic increase in manufacturing exports since 1992. In 1992, almost half of exports were textiles and clothing, while services were a large share of a small base. While services exports have grown little since, China’s exports are now dominated by machinery exports, on both a value added and gross value basis.

For both Korea and Brazil, though commercial services are a relatively low share of exports on a gross value or direct value added basis, they are clearly a major factor in the total cost structure of industry. For example in Korea in 2007, commercial services accounted for only 6.9 percent of exports on a gross value basis, and 13 percent on a direct value added basis, but for 28 percent of all value added contained in exports when embodied exports are included. In contrast, as China has opened up and became a dominant exporter of manufactured goods (especially machinery) the contribution of services to total export value added decreased. Indeed there is an interesting dynamic to China’s service intensity. As China has proceeded to open up and undertaken a dramatic increase in exports of manufactured goods, the initial stages used for productions saw a drop in total domestic value added in exports, with the rising share of manufactured goods. However, as China has progressed 19
to higher stages of processing, with machinery replacing textiles and clothing as a major export category, there has been a recovery in the total service intensity of China’s exports, from a low of 8.7 percent in 1997 to 17.3 percent in 2007.

Table 11: **Services share of total exports (excluding trade and transport)**

|||1992|1995|1997|2001|2004|2007|
|---|---|---|---|---|---|---|---|
|Gross|Brazil|0.009|0.011|0.074|0.091|0.067|0.086|
||China|0.128|0.038|0.018|0.021|0.027|0.033|
||Korea|0.035|0.058|0.067|0.056|0.049|0.069|
||USA|0.120|0.141|0.147|0.174|0.172|0.193|
|Direct VA|Brazil|0.020|0.024|0.146|0.179|0.124|0.152|
||China|0.245|0.073|0.026|0.032|0.062|0.073|
||Korea|0.060|0.101|0.115|0.107|0.094|0.130|
||USA|0.172|0.179|0.211|0.243|0.253|0.284|
|Total VA|Brazil|0.240|0.231|0.272|0.323|0.242|0.243|
||China|0.194|0.152|0.087|0.104|0.156|0.173|
||Korea|0.189|0.231|0.263|0.282|0.260|0.280|
||USA|0.274|0.266|0.308|0.324|0.327|0.346|

Brazil and China actually stand out as some kind of outlier, in terms of value added trends. For the world as a whole, we have seen that the direct value added content of exports in manufacturing has been falling since 1992. This fits with the concept of vertical disintegration of production along geographic lines, with trade flows rising in gross terms because of shipment of intermediate goods. Yet this is not the case for Brazil and China for the manufacturing sector as a whole. From Table 12 and Table 14, the total domestic value added for other manufacturing has risen from 60.6 to 70.1 between 1992 and 2007 for Brazil and from 51.5 to 67.6 percent for China in the same time period. In Korea it fell from 62.7 percent to 47.3 percent, and in the United States it stayed constant. Total value added content in exports in machinery fell for all four countries between 1992 and 2007. Similarly, in transport equipment alone (not in the table), this rose from 28.7 to 40.6 percent for China, while it stayed constant in Brazil, fell about 7 percent in the United States and increased only marginally in Korea. Brazil’s service intensity has risen over the period (from Table 11), but the driving force is likely linked to import substitution and FDI policies as well. This can be seen from Table 12, where direct domestic value added exports in other manufacturing rose from 60.6 percent to 70.1 percent 20
China’s Exports in million USD <!-- Start of picture text --> total value added in exports gross export value<br>1000000 1400000<br>a00c0d Utilities 1200000<br>rae m@ Energy and Mining<br>cn 1000000<br>TM Primary and Foods<br>SOD<br>TM Textiles and Clothing 800000<br>amen & Chemicals saansie<br>400000 @ Metals<br>alee<br>TM Machinery 400000<br>200000 .<br>100000 @m@ otherServicesF Manufacturing 200000<br>0 0<br>1992 1995 1997 2001 2004 2007 1992 1995 1997 2001 2004 2007<br><!-- End of picture text -->
Table 12: **Value added shares of exports by sector – Brazil**

|||1992|1995|1997|2004|2007|
|---|---|---|---|---|---|---|
|Brazil:|Primary|0.327|0.356|0.376|0.372|0.379|
|Direct VA share|Textiles and Clothing|0.331|0.324|0.339|0.335|0.342|
||Machinery|0.301|0.296|0.304|0.271|0.278|
||other Manufacturing|0.236|0.251|0.269|0.308|0.318|
||Trade and Transport Services|0.499|0.527|0.567|0.626|0.640|
||Commercial Services|0.722|0.719|0.739|0.666|0.670|
||Public Services|0.636|0.639|0.687|0.670|0.676|
|||1992|1995|1997|2004|2007|
|Brazil|Primary|0.746|0.703|0.720|0.666|0.641|
|Total VA share|Textiles and Clothing|0.508|0.504|0.529|0.478|0.518|
||Machinery|0.470|0.470|0.464|0.366|0.380|
||other Manufacturing|0.606|0.620|0.667|0.643|0.701|
||Trade and Transport Services|1.198|1.084|1.422|2.924|2.956|
||Commercial Services|23.924|18.104|3.713|3.631|2.696|
||Public Services|18.294|2.326|0.727|0.734|0.751|

Table 13: **Relative intensity index based on forward linkages – Brazil**

|||1992|1995|1997|2001|2004|2007|
|---|---|---|---|---|---|---|---|
|Brazil:|Primary|0.278|0.276|0.257|0.238|0.291|0.305|
|RII|Textiles and Clothing|0.047|0.037|0.036|0.029|0.026|0.020|
||Machinery|0.102|0.090|0.105|0.124|0.096|0.090|
||other Manufacturing|0.208|0.211|0.205|0.189|0.191|0.183|
||Trade and Transport Services|0.125|0.154|0.125|0.097|0.154|0.159|
||Commercial Services|0.240|0.231|0.262|0.314|0.230|0.232|
||Public Services|0.000|0.001|0.010|0.009|0.012|0.011|

22
Table 14: **Value added shares of exports by sector – China**

|||1992|1995|1997|2004|2007|
|---|---|---|---|---|---|---|
|China|Primary|0.474|0.342|0.366|0.300|0.281|
|Direct VA share|Textiles and Clothing|0.226|0.159|0.240|0.195|0.196|
||Machinery|0.257|0.210|0.234|0.179|0.183|
||other Manufacturing|0.260|0.195|0.265|0.257|0.252|
||Trade and Transport Services|0.509|0.445|0.444|0.492|0.482|
||Commercial Services|0.633|0.429|0.396|0.523|0.512|
||Public Services|0.560|0.453|0.441|0.553|0.548|
|||1992|1995|1997|2004|2007|
|China|Primary|1.406|2.114|1.974|2.234|2.554|
|Total VA share|Textiles and Clothing|0.295|0.249|0.428|0.354|0.369|
||Machinery|0.355|0.365|0.391|0.279|0.290|
||other Manufacturing|0.515|0.534|0.651|0.753|0.676|
||Trade and Transport Services|285.847|2.200|1.391|1.551|1.492|
||Commercial Services|1.030|3.292|4.513|4.738|4.036|
||Public Services|8.224|1.093|1.050|1.459|1.687|

Table 15: **Relative intensity index based on forward linkages – China**

|||1992|1995|1997|2001|2004|2007|
|---|---|---|---|---|---|---|---|
|China:|Primary|0.340|0.240|0.221|0.190|0.195|0.184|
|RII|Textiles and Clothing|0.143|0.107|0.166|0.152|0.097|0.087|
||Machinery|0.079|0.116|0.148|0.173|0.174|0.172|
||other Manufacturing|0.157|0.199|0.233|0.255|0.247|0.255|
||Trade and Transport Services|0.088|0.185|0.145|0.127|0.130|0.128|
||Commercial Services|0.190|0.143|0.081|0.096|0.142|0.160|
||Public Services|0.005|0.009|0.006|0.007|0.014|0.013|

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Table 16: **Value added shares of exports by sector – Korea**

|||1992|1995|1997|2004|2007|
|---|---|---|---|---|---|---|
|Korea|Primary|0.415|0.223|0.203|0.119|0.084|
|Direct VA share|Textiles and Clothing|0.208|0.206|0.275|0.270|0.265|
||Machinery|0.265|0.269|0.270|0.262|0.260|
||other Manufacturing|0.247|0.251|0.260|0.223|0.194|
||Trade and Transport Services|0.600|0.587|0.588|0.456|0.436|
||Commercial Services|0.491|0.476|0.532|0.515|0.498|
||Public Services|0.695|0.673|0.675|0.686|0.678|
|||1992|1995|1997|2004|2007|
|Korea|Primary|1.431|1.014|0.701|0.563|0.393|
|Total VA share|Textiles and Clothing|0.315|0.326|0.354|0.375|0.380|
||Machinery|0.359|0.348|0.373|0.358|0.356|
||other Manufacturing|0.627|0.673|0.634|0.582|0.473|
||Trade and Transport services|0.997|0.957|0.921|0.800|0.741|
||Commercial Services|3.522|3.510|2.564|3.193|2.108|
||Public Services|3.257|1.221|2.361|2.973|3.324|

Table 17: **Relative intensity index based on forward linkages – Korea**

|||1992|1995|1997|2001|2004|2007|
|---|---|---|---|---|---|---|---|
|Korea:|Primary|0.099|0.049|0.046|0.037|0.037|0.038|
|RII|Textiles and Clothing|0.116|0.075|0.065|0.058|0.034|0.021|
||Machinery|0.184|0.226|0.259|0.282|0.342|0.348|
||other Manufacturing|0.227|0.208|0.192|0.188|0.179|0.165|
||Trade and Transport Services|0.185|0.212|0.175|0.153|0.149|0.148|
||Commercial Services|0.166|0.187|0.225|0.242|0.212|0.234|
||Public Services|0.023|0.044|0.038|0.041|0.048|0.046|

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Table 18: **Value added shares of exports by sector – United States**

|||1992|1995|1997|2004|2007|
|---|---|---|---|---|---|---|
|USA|Primary|0.367|0.364|0.348|0.351|0.314|
|Direct VA share|Textiles and Clothing|0.359|0.371|0.337|0.343|0.345|
||Machinery|0.453|0.465|0.413|0.328|0.327|
||other Manufacturing|0.358|0.423|0.390|0.385|0.372|
||Trade and Transport Services|0.611|0.596|0.586|0.566|0.552|
||Commercial Services|0.675|0.563|0.592|0.571|0.569|
||Public Services|0.843|0.777|0.776|0.693|0.688|
|||1992|1995|1997|2004|2007|
|USA|Primary|0.987|0.722|0.667|0.629|0.567|
|Total VA share|Textiles and Clothing|0.537|0.622|0.560|0.566|0.612|
||Machinery|0.530|0.579|0.512|0.434|0.435|
||other Manufacturing|0.712|0.890|0.831|0.757|0.713|
||Trade and Transport Services|1.124|1.189|1.369|1.975|1.834|
||Commercial Services|2.061|1.908|2.167|1.857|1.671|
||Public Services|2.120|1.008|1.216|0.875|0.855|

Table 19: **Relative intensity index based on forward linkages – USA**

|||1992|1995|1997|2001|2004|2007|
|---|---|---|---|---|---|---|---|
|USA:|Primary|0.126|0.085|0.068|0.061|0.074|0.082|
|RII|Textiles and Clothing|0.013|0.016|0.015|0.014|0.013|0.010|
||Machinery|0.223|0.251|0.246|0.247|0.209|0.196|
||other Manufacturing|0.146|0.190|0.184|0.193|0.204|0.200|
||Trade and Transport Services|0.217|0.192|0.179|0.161|0.173|0.166|
||Commercial Services|0.259|0.230|0.242|0.258|0.283|0.298|
||Public Services|0.015|0.037|0.066|0.066|0.044|0.048|

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# **5 Summary**

Given the dominance of the service sector in most economies, it makes sense that the applied input-output and CGE literature has moved away from an exclusive focus on goods. Much of this literature is focused on cross-section comparisons, benchmarking of openness and shifts in policy regimes, but also recently quantifying the behind the border linkages between services and goods. In this paper, we have taken advantage of recent data from the GTAP database (benchmarked to 2007) and have combined this with earlier releases. As a result, we have a dataset, with a common classification scheme, national input-output linkages, and cross-border linkages through trade for 29 countries and/or regions, and for 24 sectors. These data cover 1992, 1995, 1997, 2001, 2004, and 2007. They offer a unique opportunity to examine the value added linkages between services and goods, and the importance of services, through these linkages, for the total cost structure of traded goods and services. This panel approach offers the opportunity to extend recent work on the impact of service sector openness and cost structures on shifts in the pattern of production and trade, similar to the work of Inklaar, Timmer and van Ark (2008) and Triplett and Bosworth (2004), but with a ”beyond OECD” focus and with the opportunity to explore cross border linkages as a factor in recent productivity gains in services. We have done some basic data exploration here, but in our view there is great potential in refining and extending these data, and organizing the historic GTAP data series for panel-based analysis of value added trade, and within and cross-country linkages.

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