Revealed Specialization: Evidence on U.S. International Services

Abstract

This article is an investigation of the comparative advantage structure of United States international trade in services. It appears that the United States has a strong comparative advantage in knowledge-based services. For this study, the author adopts the Revealed Comparative Advantage (RCA) index to analyze the comparative advantage structure, and demonstrates that variance in the RCA deviations indicates a similarity in the export structure between the United States and the world. This study also focuses on the role of multinational companies, linking microeconomic entities and the macroeconomic surroundings.

ACKNOWLEDGMENTS

I would like to thank Akihisa SHIBATA and Satoru NAKAMOTO for their advice on the theoretical and empirical research. I am also grateful to two anonymous referees for detailed and constructive comments. This research is supported by a Grant-in-Aid for the 21st Century COE Interfaces for Advanced Economic Analysis. All results, opinions, and errors are the responsibility of the author alone.

Notes

¹ Balassa (1965).

² Porter (1990).

³ Harms, et al. (2003) discussed the determinants of international trade policies in international financial services relevant to the GATT by developing a political economy model.

⁴IMF (1994); cf. United Nations, et al. (2002).

⁵Notes: “n.i.e.” stands for “not included elsewhere.”

⁶IMF, Balance of Payments Statistics 2005, CD-ROM, IMF Publication Services.

⁷ Crowther (1957); Kindleberger (1963); Onitsuka (1974).

⁸IMF, Balance of Payments Statistics 2005, CD-ROM, IMF Publication Services.

⁹In their paper, the RCA labels are referred to as the Balassa Index. Although different names are used in the two papers, the definitional equation is the same. Therefore, we can apply the classification to this article.

¹⁰The deviation convergence to zero in the long-term indicates whether specialization or imperfect specialization contributes to the growth of exports in a country. The question remains unanswered. Based on the empirical analyses, we introduce some speculations about the question in Section IV.

¹¹See Table III.

Table III. Detail of RCA Calculation

¹²Calculated by the author from IMF, Balance of Payments Statistics 2005, CD-ROM.

¹³ Hisanaga (2006) provided an in-depth examination of worldwide transactions involving IPRs and the role of multinational companies.

¹⁴ Nunnenkamp and Spatz (2004) examined the relationship between IPRs and Foreign Direct Investment in detail. Since the international transactions of IPRs are majored by MNCs, we can confirm importance of their view. One of the characteristics in international IPR transactions is an increase in international licensing. Yang and Maskus (2001) investigated this relationship econometrically.

¹⁵U.S.D.O.C., various issues; Balance of Payments Statistics and those from the Survey of Current Business use the same label. While attention must be given to differences in the statistics, both sources revealed similar values during the observation period.

¹⁶ Borga and Mann (2004: 39).

¹⁷ IMF (1993).

¹⁸ Mann (2004: 265). The concept of New Economy Services in Mann (2004) is different from that of New Trade in Services as referred to in this paper. The latter is a way to make New Trade in Services correspond to Traditional Trade in Services, which is Travel and Transportation in the balance of payments. Although the coverage overlaps partially in both concepts, the former is more essential than the latter.

¹⁹ Mann (2004: 271–272).

²⁰In this study, two sectors, Insurance Services and Government Services, n.i.e., are omitted, and Goods is treated collectively in the complication of the RCA. It may be sufficient for monitoring the general trends in the U.S. export structure, while the ESS in this study appears to be ambiguous.