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Business services: a source of comparative advantage

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  • Nordås, Hildegunn Kyvik

Abstract

Business services provide essential inputs to production and trade in both goods and services, and a broad and competitive supplier base in such services may be a source of comparative advantage in downstream sectors. This paper explores the role of business services for competitiveness in downstream industries. It starts by analysing the determinants of trade in business services using a gravity approach. Second, trade costs in business services are estimated from gravity residuals. Third, the relationship between trade costs in business services and performance in downstream industries are explored. The performance indicators included are the Grubel-Lloyd index of intra-industry trade, an index of marginal intra-industry trade and weight-to value ratio of exports. The downstream industries analysed are electronics, motor vehicles, chemicals and textiles. The paper finds that contrary to popular perceptions, trade in business services are highly sensitive to distance, but the marginal impact of distance is smaller for large countries and countries with a high GDP per capita. Also contrary to popular perceptions, trade costs in business services including computer services are not significantly lower than for services on average. Trade costs in business services are negatively related to all the performance indicators in downstream industries. The business services share of total costs is positively related to the value to weight ratio in manufacturing industries, suggesting that the higher value added end of the product spectrum is more business services intensive. The paper concludes with a discussion of policy measures that can be taken to bring down trade costs in business services.

Suggested Citation

  • Nordås, Hildegunn Kyvik, 2010. "Business services: a source of comparative advantage," Conference papers 331964, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331964
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    References listed on IDEAS

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