Understanding world and South African trade in services

Abstract

Services trade has become a significant component of world trade and has been given more academic profile since its inclusion in the Uruguay Round of GATT trade talks. However, the paucity of academic work means that services trade is still poorly understood and lacks significant statistical analysis. This research begins by analysing the characteristics of different service types using South African output, capital, employment and wage data. This demonstrates that consumer services tend to be labour-intensive while producer and community/social services tend to be capital- and skill- intensive. Then IMF balance of payments data and World Bank output data for all world regions is used to calculate the cause of growth in services trade, the product structure of traded services and the export and import performance of countries from different regions and development stages. It is found that producer services account for almost 2/3's of traded services followed by consumer services with around 30%. Industrial countries dominate services trade to a far greater extent than goods trade yet this dominance is diminishing due to the growing share of the Asian developing economies. Further analysis of service trade patterns finds that although traditional trade theory and its extensions account for much of what is observed, it needs to be augmented by the strong influences of geographical proximity, policy distortions and the level of other trade and investment that a country engages in. A mix of IMF and SARB data is used to construct a service trade data set for South Africa which complies with the new IMF BPM5 definitions. This data reveals the poor performance of South African service exports which have been stunted to a large degree by sanctions and geographic isolation from the large growth regions of the world. A closer inspection of the product mix reveals that exports are dominated by the labour-intensive travel sector with particularly poor performance within the business services sector. Imports are dominated by the capital-intensive transportation sector. A regional breakdown of trade reveals the dominance of trade with the African and European regions - signs of the importance of regional proximity and trade and investment links in services trade.