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than competition with other advanced economies Annex 2.1; Araujo et al., 2017. In particular, the competitive pressure on a typical OECD countrys exports from an increase
in the United States’ specialisation in a product is more than three times that from China and twice that from the Dynamic Asian Economies.
Figure 2.7. Advanced OECD countries specialise in more complex products than emerging markets
1. Complexity is defined by the implied productivity of the product PRODY using the methodology of Hausmann, R., J. Hwang and D. Rodrik 2007, “What you export matters”, Journal of Economic Growth, Vol. 12. PRODY is calculated by taking a weighted average of per
capita GDPs of the countries that export the product. The weights are the revealed comparative advantage of each country in that product. The products are then ranked according to their PRODY level. An example of a product in the 4th highest quartile is
magnetic imaging resonance MRI machines used in scans in hospitals, which ranked 18th in 2015 out of 4989 products listed in the Harmonized System 6 classification. A product in the 1st lowest quartile is crayons ranked 4218th in 2015. The analysis is carried out
using a high level of product disaggregation to capture specialisation at different stages of the production chain. Nevertheless, the data are measured in terms of gross value and not value added as would be used in measures of global value chains GVCs. DAE refers
to Dynamic Asian Economies.
2. Sectoral RD intensity is calculated in line with the OECD methodology described in Galindo-Rueda, F. and F. Verger 2016, “OECD Taxonomy of Economic Activities Based on RD Intensity”, OECD Science, Technology and Industry Working Papers, 201604, OECD
Publishing, Paris. Source: UN Comtrade database; OECD TiVA database; and OECD calculations.
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100
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100
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WLD JPN
DEU IRL
HUN USA
FRA CZE
DAE MEX
CAN GBR
ITA POL
CHN PRT
LTU LVA
1st quartile 2nd quartile
3rd quartile 4th quartile
A. Share of exports by complexity quartile¹, value
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IRL ISR
DEU CHE
KOR HUN
SWE DNK
NOR CZE
GBR JPN
SVN AUT
USA FIN
BEL SVK
FRA NLD
CHN ITA
IND MEX
BRA ESP
CAN EST
POL TUR
AUS IDN
LUX PRT
NZL GRC
LVA ISL
CHL 1995
2011
B. Share of high RD intensity² industries in manufacturing output
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Moreover, competition effects are on average small compared to a change in the world demand for individual products. The negative effect of a one standard deviation decrease
in world demand for a product exerts 6 times more pressure than a one standard deviation increase in the specialisation of the United States for that product. In short, specialising in
what the world wants to buy is key for exports.
Despite the relative importance of world demand on average across all products and countries, competition effects may still be important in particular products at particular
times, especially in markets that account for a large share of a countrys exports or if a new competitor enters a product market suddenly with a large share. In addition, competition
effects may be more permanent than fluctuations in world demand. Finally, losses in market share may be more noticeable now than in the pre-crisis period, as world trade is
growing more slowly.
Trade in services has gained importance
While specialisation in goods has narrowed for advanced economies, specialisation in services has strengthened. Trade in services has been one of the most dynamic segments
of global trade in the past two decades, and has proved resilient to the post-crisis trade slowdown Figure 2.8; Ariu, 2016. In particular, business services have been the fastest
growing segment of services exports since 2000. Advanced economies dominate global services trade overall, both as exporters and as importers, and have a strong competitive
edge in business services. However, the capacity of emerging market economies to benefit from services trade opportunities has also grown over time. Their total exports of services
have increased more than four-fold since 2000 and their business-services exports more than seven-fold, with India having emerged as a leader in the IT industry.
About three-quarters of the value of services traded consists of intermediate inputs that serve to coordinate value chains, support production processes and add value to
products through quality differentiation and customisation De Backer and Miroudot, 2013; Miroudot and Cadestin, 2017. Trade in services thus supports the competitiveness of the
manufacturing sector in terms of price and quality, by providing access to cost-effective services inputs and by inducing local services suppliers to upgrade their efficiency OECD,
2017d. In particular, the development of information and communication technologies has broadened the range of offshorable business services – from back-office functions to
software development, legal review and other knowledge-intensive tasks.
Overall, rising trade integration has modified the relative cost of production and hence the comparative advantages of advanced economies in goods and services. This trend has
interacted with the domestic forces examined in the previous section, in particular changing tastes and technological progress, to make advanced economies relatively more
service-oriented see Box 2.3. These forces trade, technology and tastes tend also to re-inforce each other as there is a close link observed between the types of goods an
economy exports and the types of goods consumed Dinopoulos et al., 2011; Demmou, 2012. Changes in specialisation, sectoral jobs and wages in each country all depend on the
importance of these forces.
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Adding up the gains: Global trade integration has increased efficiency and welfare
Trade is associated with welfare gains for consumers
Changes in trade specialisations and patterns have brought many benefits. First, for consumers, the integration of emerging market economies, particularly in Asia, into the
multilateral trading system has greatly reduced the prices of consumer goods, such as clothes, textiles and electronics in advanced economies Figure 2.9. The benefit of lower
consumer prices accrues disproportionately to low and middle-income groups who spend a larger share of their disposable income on standardised consumer items. Consumers
have also benefited from the greater variety of goods and services available to them Fajgelbaum and Kandhelwal, 2016; Bai and Stumpner, 2016; Broda and Weinstein, 2004.
Figure 2.8. Business services trade is growing fast
1. Business services include communication, computer and information services, financial and insurance services, royalties and license fees, and other business services.
2. Other services include construction, personal, cultural and recreational services, and government services. 3. OECD countries except Chile, Mexico and Turkey.
4. Include Brazil, Chile, China, India, Indonesia, Mexico, Russia, South Africa and Turkey. Source: WTO, Trade in Commercial Services; IMF Balance of Payments Manual, Fifth edition BPM5.
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Advanced economies³ Emerging market economies
4 Travel
Transportation Business¹
Other²
A. Exports
