Trade in goods and services: Two sides of the same coin?

This study analyzes the interrelationship between goods and services in production and trade using the most recent input-output tables for all OECD countries. It first describes the role of services in production and trade in goods. Next, it proposes two models for analyzing the impact of services trade liberalization on industrial structure. The first captures the role of trade in tasks when countries have different technology i) in production of services; and ii) in organizing production. The latter has to the author's knowledge not been analyzed in the trade literature before. Countries with superior organizational technology (e.g. Japan) will strengthen their comparative advantage in manufacturing following trade liberalization in services. The second model explores the interrelationship between intermediate goods and services i) when they are substitutes; and ii) when they are complements. In both models the gains from trade liberalization is non-linear in trade costs. Going the last mile of liberalization has a much larger impact than taking the first steps.