A Study on the Determinants and the International Competitiveness for Service Trade
by Kim, Young Hwan
Department of International Trade
Korea Maritime University
The importance of the service industry has been expanded continuously as the economy has progressed recently. In the past, the service industry was regarded as a field with low productivity, compared with the manufacturing industry, because it was characterized by a low level of technical standards and its labor-intensity. However, the importance of the service industry begins to be newly recognized because of the development of information-communication technology and transportation which contribute to the improvement of productivity. It not only enables commodities to be delivered in the long distances, but also makes the previous services embodied in the goods now more separate from those goods.
The importance of the service trade is highly emphasized as the international trade volume has increased according to the globalization of the economy. It is also expected that the service trade will be expanded because the value added ratio it has created is over 70%. On the contrary, the ratio of the service trade over world is just 20%. Compared with the classic manufacturing industry, the service industry is highly value-added. It also encourages a stable national economy by stimulating other industries like manufacturing, creating jobs and promoting consumption.
Although Korean economy has enjoyed its national competitiveness in the manufacturing industry, it has been burdened with the service trade deficit.
Therefore, the purpose of this thesis is to find out what is going on in Korean service industry by analyzing the situation of the service industry, present progress of the service trade, Korean national competitiveness in the service trade and the main causes which decide the amount of exports in the service trade.
In order to analyze all of facts mentioned above in the service trade, several statistical researches are required. First, I took advantage of the evaluation indexes for international competitiveness such as the Trade Specialization Index (TSI), Revealed Comparative Advantage (RCA) and International Market Share (IMS). IMF's Balance of Payments statistics(BOP) was used as statistical data. The results are that the transportation service has shown the most competitive sector in Korean service trade while the financial service and the construction service are slightly competitive rather than other services. Secondly, I made an attempt to know what factors affects the service industry's growth. Gravity Model was utilized in doing that with OECD Statistics on International Trade in Services, which targets 34 OECD members. It is found that the GDP growth of the importing country contributes the expansion of the service trade volume. It is also found that cultural accessibility (e.g. language, historical relation, and colonial experiences etc.) and economic freedom have a meaningful effect on service trade between the two countries. Consequently, in order to expand the service trade, the policies which aims at expanding the freedom for both domestic trade and business are acutely required.