The role of intermediate demand and technology for international competitiveness of the KIBS sector: evidence from European Union countries

ABSTRACT

In this paper, it is tested whether intermediate consumption of knowledge-intensive business services (KIBS) in the economy and technology advancement in the KIBS sector (measured by R&D expenditures) affect the international competitiveness of a country's KIBS sector. First, the definition of KIBS trade, in light of the available data from the balance of payments statistics, is presented. Then, using a panel data set from the EU countries over the period 2000–2009, a panel cointegration approach to estimating the model is adopted. The empirical study shows that among the old EU countries only those with high income are competitive in KIBS exports. Estimation results demonstrate that their competitiveness in KIBS exports is positively determined by domestic and imported KIBS intensity in the economy, as well as by the KIBS sector's technology advancement. The new EU countries usually were not competitive in KIBS exports, and those which were successful in this field seem to have derived their success mainly from international outsourcing rather than from building their own capacities. Their competitiveness in KIBS exports was positively determined by the KIBS sector's endowment in human capital, or via domestic KIBS intensity in the economy together with lower labour costs.

KEYWORDS:

• International competitiveness
• service trade
• knowledge-intensive business services (KIBS)
• research and development
• intermediate demand

JEL CLASSIFICATION:

• F14

Acknowledgements

I would like to thank two anonymous referees of this journal for their valuable suggestions that significantly helped me in improving the paper. I'm also very grateful to Przemyslaw Wlodarczyk for his support and comments on the econometric part of the study.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. Due to the revision of NACE (Rev. 1.1 into Rev. 2), the definition of KIS has changed. The definition presented in this point is consistent with NACE Rev. 1.1, as it is in line with the data used in the model constructed in the further part of the paper.

2. OBS consist of merchanting and other trade-related services; operational leasing services and miscellaneous business; professional and technical services (including legal services; business and management consultancy, public relations services; accounting, auditing, book-keeping and tax consulting services; advertising, market research and public opinion polling; research and development services; architectural, engineering and other technical consultancy; agricultural, mining, and on-site processing; other miscellaneous business, professional and technical services; services between affiliated enterprises, n.i.e.).

3. The Eurostat database is not used because it lacks data on world service trade, which is necessary to calculate RCA values. But even when using Eurostat data it is not possible to exclude LKIS, as data on individual components of service categories are usually incomplete and in some cases they are available at a too high level of aggregation (e.g. there are no data on the different types of telecommunication services).

4. The term ‘persons engaged’ is wider than ‘employees’ because it also includes self-employed and family workers (Timmer et al. 2007, 25).

5. Labor costs and human capital cannot be used simultaneously as independent variables due to their collinearity.

6. This definition of KIBS trade is synonymous with FCBS trade analyzed by Guerrieri and Meliciani (2005).