International Trade and Services Research Paper

International Trade in Services in BRIC Countries

International trade in services plays a key role in the economic development of a country. Trade in services has grown at a much faster pace than the trade in good for the past three decades. This paper analyzes International trade in services in context of Brazil, Russia, India and China (BRIC countries). The paper discusses in detail how these countries have made drastic changes in the world economy by making substantial trade and output gains in the recent years. It also explains the major role played by BRIC countries in EU trade in services.

BRIC Countries and Services Trade

Geographical Structure of Services Trade

Sectoral Structure of Services Trade

Services Trade in China and India

Trade Balances and Specialization Indices

BRIC Countries and EU trade in Services

India -- The Leading BRIC nation in Services Trade with UK

References

International Trade in Services in BRIC Countries

Introduction

International trade in services plays a pivotal part in economic growth, reduction of poverty and export competitiveness of a country. The share of trade in services in the overall trade has been increasing at a rapid pace for the past three decades. Financial services, communication services, and business and professional services have been the most dynamic part of trade in services. Trade in commercial services is defined as total trade in services, minus government services, not included elsewhere (Soo, 2012). Unlike goods, services are not physically tangible. Services are considered invisible, something which cannot be stored and which cannot be transported. They are usually produced and consumed simultaneously. Internationalization of trade in services is the exploitation of commercial economies of scope and scale (Lipsey, 2006). Companies cater several international markets by deriving economies of scope and utilizing competitive advantages over national rivals. This is done with the motive of establishing an international network of branches with the aim of expansion. This caters with the commendable benefits of global integration of information, data and marketing, the tying of internationally mobile clients to the company, and the cutting of investment and operating costs.

There exist three sub-categories of commercial services, namely: transportation services, travel, and other commercial services. Transportation services encompass all sorts of transportation of passengers and freight. Travel comprises of goods and services acquired by personal travelers including business travelers. Lodging, food and beverages, entertainment and internal transport, gifts and souvenirs all constitute a prime part of travel services. Other commercial services can further be categorized as (1) communications, comprising of telecommunications, postal and courier services; (2) construction; (3) insurance services; (4) financial services; (5) computer and information services; (6) royalties and license fees; (7) other business services; and (8) personal, cultural and recreational services (Cattaneo et al., 2010).

The financial crisis engulfing the entire globe had a deep impact on international trade from financial and physical side. From the financial perspective, the crisis adversely affected international trade by directly impairing the environment for trade financing with tougher conditions, reducing credit lines, and delaying trade settlement, thus adversely affecting international trade. From the physical scenario, the financial crisis led to a considerable depreciation of financial assets. Consumption and investment declined drastically due to the rapid reduction of wealth which caused the reduction for demand for imports including services. As financing constitutes a part of services, any sort of financial crisis has a direct impact on services sector. The physical economy operations are directly linked to services trade, which affects it to a great extent (Lipsey, 2006).

BRIC Countries and Services Trade

BRICs possess diverse services structures yet all the countries follow a similar trend. All of them have in general decreased shares of traditional services in their exports. The development of new patterns of specialization in Brazil and China has paved the way for significant enhancement in their shares of other business services. This has catered computer and other information services in India to gain a lot of importance for export (Havlik et al., 2009). The economic rise of Brazil, Russia, India and China has triggered impressive changes on the world economic stage during the last few years. These countries have been successful in attaining commendable trade and output gains in recent years by expanding at rates far exceeding global averages. China has actually emerged as a global player due to its rapid economic expansion. Due to this they are gaining immense interest in the world economy. Business service exports in Brazil, India and China are increasing at the rate of 10% per year and India tends to be soon a part of those countries which export more of their services in comparison to their goods (Cattaneo et al., 2010).Since the 1990s, the share of services in BRICS country GDPs has increased at a consistent pace. In China the share of services has increased from 38.5 per cent in 1990 to 45.7 per cent in 2008. The growth of services sector is attributed to the increased technology-intensive investments and a higher supply of human resources, which paved the way for higher productivity in the BRICS economies. Apart from services exports, the BRICS' imports of services have also grown tremendously, which reflects the increasingly broad-based nature of growth achieved by these economies over the past decades. Industrialization done at a large-scale and the increased emphasis on exports encouraged a high demand for services. Apart from improving the living standards of the middle class of these economies have driven the import demand of services to a greater extent.

In BRIC countries, on an average, services are characterized by low tradability than goods. This is attributed to the lower share of services in the GDP as compared to goods. Among the BRIC nations, Hong Kong stands out as an outlier with respect to openness of services trade which is an indicative of the peculiar nature of the country's economy. As far as services openness is concerned India is ranked second. The global specialization of India's economy in services trade is evident by the fact that the services export ratio to GDP of the country more than twice exceeds the indicators of the U.S.A. And Japan. On the contrary, Brazil has quite a low share of services exports in GDP, which is only 1.7%. The country is more open to services imports whose share 2.6% in GDP. However, Brazil still lags behind all the other BRICs. China and India are considered the biggest services traders among BRIC countries, as they constitute 60% of the total services import and export of the BRIC countries.

On the whole, the share of BRICs in global services trade is much lower than that of the developed countries in the benchmark. The total services export of BRIC countries is 4.5 times smaller than EU27 (Halvik et al., 2009). The paper now proceeds with a detailed discussion of BRIC trade services and its geographical and sectoral structure.

Geographical Structure of Services Trade

EU27 tends to be a more significant and pivotal market for Brazil, China and Russia in comparison to U.S. Or Japan. The present geographic structure of services exports show that U.S. possesses higher export structures in India and Hong Kong as compared to EU. The EU27 share in Russia's services exports exceeds 40% which is an indicative of the fact that Russia is the most dependent on the EU as a market for its services exports. China and Russia hold lofty EU services export shares if we have a look at EU27 markets from the perspective of export services among BRIC countries. Due to increased imports from Hong Kong and China in Japan, it holds a high share of BRIC service imports, which constitutes about 10% according to the statistics of 2007. BRIC countries have a share of only 4% in the services imports of U.S. And EU27.

All the BRIC countries are now making strenuous efforts in increasing their services exports at a much faster pace as compared to U.S., Japan and EU27. India has topped this race by increasing its services exports more than 5 time during the period of 2000-2007. China and Russia increased their services exports by 4 times during that period, and Brazil by 2.5 times. If the export of services to EU grew at the same pace, China and Hong Kong are most likely in a position of gaining more shares in the EU services exports (Havlik et al., 2009).

Sectoral Structure of Trade Services

The sectoral structure of services trade distinguishes between traditional services comprising of tourism and transport and commercial services which include financial, communication, and computer services, royalties and license fees. These services are producer related and have played a major role in increasing their shares in global services trade over the past few years.

BRIC countries possess a diverse structure of services exports. Traditional transport and travel services dominate the services exports of China and Russia. Hong Kong tops the list of all countries being analyzed, in terms of financial services export. India specializes in exports of computer and information services. Russia exports….....