Knowledge-Intensive Business Services Embodied in International Trade – A Comparative Analysis of European Union Countries

Joanna Wyszkowska-Kuna

University of Łódź

Faculty of Economics and Sociology

Knowledge-Intensive Business Services

Embodied in International Trade –

A Comparative Analysis of

European Union Countries

2018 8th International Conference on Economics, Trade and Development (ICETD 2018) Prague 2018

Aim:

To estimate the value of Knowledge Intensive

Business Services (KIBS) embodied in

international trade

Method:

Classic input-output model

Data:

WIOD Release 2016, covered period: 2000-2014

ICETD 2018

Literature review

• Intermediate consumption of services increases with economic development, which is a result of changes in quality (a need to

create some new departments, a need for better communication or more advanced specialization) following changes in quantity

(increase in: a plant’s size and its equipment, labor and intermediate inputs) (Greenfield, 1966).

• Increased interest in the growing role of producer services in high-income countries has been visible only since the 1980s. : Gershuny and Miles (1983); Gershuny (1987); Howells, Jones and Kierzkowski (1990); Francois (1990a,b); Rowthorn and Ramaswany (1999), Klodt (2000); Green (1985); Park (1989); Park and Chan (1989); Uno

ICETD 2018

Literature review

• Along with the development of economies based on

knowledge, the growing demand for intermediate

services refers mainly to the group of services called

‘knowledge-intensive business services’ (KIBS).

• Technological progress (the ICT revolution) has also

contributed to the increasing trade in intermediates,

with respect to both manufacturing and services, in

particular KIBS.

ICETD 2018

The motivation for this paper

• Among the studies linking the development of service trade to the increasingly complex patterns of trade in intermediate goods and services passing within and between

countries before reaching final consumer one can mention the following: Johnson and Noguera (2012a,b); Baldwin and Lopez-Gonzalez (2014); Egger et al. (2017). In a similar line of research there are a few empirical studies analyzing the services embodied in goods trade: Tucker and Sundberg (1988); Grubel (1988); Urata and Kiyota (2003); Kiyota (2005); Francois, Manchin and Tomberger (2015); Rodriguez, Melikhova and Camacho (2017).

• There are a few studies showing the increasing direct share of knowledge-intensive

services (KIS) in gross trade transactions (Brinkley 2007 – UK; Javalgi et al. 2011 and Chen 2011 – emerging markets; Warf 2012 – USA; Wyszkowska-Kuna 2014 – Poland), and only two studies indicating a similar trend with respect to KIBS (Wyszkowska-Kuna 2016b – the EU new member states, 2016c – world). One can find also two papers examining the

determinants of competitiveness in KIBS exports (Guerrieri and Meliciani 2005; Wyszkowska-Kuna, 2017).

• To the best of my knowledge there is no study examining the value of KIBS embodied in international trade.

ICETD 2018

The motivation for this paper

• The analysis based on value added is particularly relevant with

respect to KIBS, as it highlights the importance of trade in

non-traded services, and most KIBS can be considered as such –

KIBS usually are tailored to the individual needs of a given

consumer –this requires intensive relations between KIBS

providers and recipients, which puts some limits on their

tradability.

• It should be noted however, that goods, produced using these

services as intermediate inputs, can be easily traded

ICETD 2018

Definition of KIBS

• In the subject literature there have been many attempts

to define and characterize KIBS.

• There is a common view that KIBS provide

knowledge-intensive input to economic processes in their clients’

companies, both private and public.

• One, generally accepted, definition of KIBS does not exist

– there is only the Eurostat’s definition of KIS.

ICETD 2018

Definition of KIBS

• Following the Eurostat’s definition of KIS, KIBS are defined as those KIS that are simultaneously recognized as producer services, which is in line with splitting services into: (1) intermediate (distributive and producer) and (2) final ones (Browning and Singelman 1978).

• This refers to services delivered by the following divisions (according to NACE Rev. 2): Telecommunications (61), Computer programming, consultancy and related activities; information service activities (62-63), Financial and insurance services (divisions 64-66,) Professional, scientific and technical services

(divisions 69-75) and Employment services (78) (Wyszkowska-Kuna, 2017).

• The above mentioned divisions include some services that are less knowledge-intensive. It is not possible to exclude them because of the lack of data availble at higher level of disaggregation. Thus, to reduce the problem, KIBS are often defined in a narrower sense (Schnabl, Zenker, 2013).

ICETD 2018

Definition of KIBS

• In the present study KIBS are defined according to the narrower approach, as comprising services delivered by divisions:

J62_J63 Computer programming, consultancy and related activities; information service activities

M69_M70 Legal and accounting activities; activities of head offices; management consultancy activities

M71 Architectural and engineering activities; technical testing and analysis

M72 Scientific research and development M73 Advertising and market research

Tth

�=(� − �)

_{�= � �}

Method

-based on the Leontief model (Leontief, 1936, 1941) and Leontief paradox (Leontief, 1953)

Joseph Francois, Miriam Manchin, Patrick Tomberger, Services Linkages and the Value Added Content of Trade, The World Economy, 2015, pp. 1631-1649

From the point of view of national statistics, exports (as other final products) is the last stage of value chain, where the value added is accumulated.

It means, that the value of export is equal to value added embodied in it. Thus, estimating value added embodied in export is actually splitting this value added into imported and domestically produced value added.

ICETD 2018

Method

Finally, the value of KIBS embodied in exports was

calculated as the sum of elements of vector x

representing divisions 62-63 and 69-73.





)

1

(

x

KIBS

 x

KIBS

KIBS

KIBS

ICETD 2018

Value of KIBS sector output imputed to 1 USD of

export – the KIBS intensity of export

ICETD 2018

Share of KIBS sector in all output imputed to export

– the importance of KIBS for export

ICETD 2018

Composition of KIBS sector output imputed to

exports

ICETD 2018

Composition of KIBS sector output imputed to

exports

ICETD 2018

Composition of KIBS sector output imputed to

exports

1. The value of output of KIBS sector neccessary for producing a unit of export increased in most of the EU countries. It decreased for Italy and Czech

Republic only.

2. Initially (2000), these values for the old EU members were higher than for the new members.

3. In 2014 Romania moved from the last to the seventh place. The average for the EU-15 was still significantly higher than for the EU-13, but this difference was reduced.

4. Similar conclusions can be drawn upon the share of KIBS sector in all output imputed to export.

The importance of KIBS increased. The average share for the old EU

members rose from 6.9% to 8.5%. For the new members it grew from 4.1% to 6%.

ICETD 2018

1. Export is more KIBS intensive than production

for domestic final demand. This difference is not

much, but its growing. The difference between

EU-15 and EU13 is rarther small. Both averages

went up. The variation is high.

2. Ireland is an outlier, the highest dynamics can

be noticed in the case of Romania.

ICETD 2018

1.Legal and accounting activities; activities of head offices; management consultancy activities accounted for the highest

share in KIBS output imputed to exports in both groups. They were more important in EU-15 than in EU-13, with an upward trend only in EU-15.

2.Computer programming, consultancy and related activities; information service activities have experienced the highest

growth in all EU countries – in EU-13 it was the only one

category that has increased its share, and this growth was nearly twice higher than in EU-15.

3. Ireland is an outlier because of the share and dynamics of

Computer programming, consultancy and related activities; information service activities.

ICETD 2018