Is Thailand taking advantage of globalization of services?

Service Exports: A Toolkit for Assessing Export Performance & GrowthInternational Trade DepartmentPREM, The World BankNovember, 2011

SAMPLEWDI, World Bank and BOP, IMF. 2011.

Primarily focused on comparing Thailand's performance in service exports with

Cambodia, Malaysia, China and India

Questions: - To what degree also bring goods analysis as a focal comparator? ……

CONTENTSHow important are services to growth in

Thailand?

Service Export performance:- Export Growth- Tradability- Productivity- Modernity- Specialization

Service Export SophisticationService Export Sophistication and Economic

Growth

SERVICES AND GROWTH

starting the discussion

Thailand has a relatively low share of services given its stage of development

Contribution to Growth of service has declined

Declined by around 7 percent

Countries with higher service output growth grew faster

SERVICE EXPORT PERFORMANCE

Service exports growthtradabilityproductivity modernityspecialization

Growth in Goods and service Exports

Growth in Service Exports

Comparative Advantage, Thailand

Share of services in total exports declined

TRADABILITY – service exports/service value added (%)

Service Productivity, in constant 2000 US$ (NOTE: Labor force)

0

10000

20000

30000

40000

50000

60000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Thailand Malaysia China Singapore

EVOLUTION OF SERVICE EXPORTSChanging nature From

Traditional to Modern

Share of Traditional vs. Modern in 1990 and 2009

0

10

20

30

40

50

60

70

80

90

100

1990 2009 1990 2009 1990 2009 1990 2009 1990 2009 1990 2009 1990 2009

Sub Saharan Africa

Brazil China India Ireland United States Thailand

Traditional Modern

SERVICE EXPORT SOPHISTICATION

Measure of Services Export Sophistication• Inspired by Hausmann, Hwang and Rodrik (2007), What

you export matter: “Goods EXPY” a proxy for the sophistication of goods or the production frontier in a country. A country with a high level of self-discovery latch on to “higher productivity goods”, not simply the goods that are determined by their endowments.

• We wanted a measure capturing countries discovery process in terms of services as well as the changing nature of services: “Service EXPY”

• Not only have countries become more sophisticated in the type of services they export, but some services themselves have become more sophisticated.

Service PRODY• PRODY is a proxy for the expected

income/productivity level associated with a particular service category.

• Construct PRODYs for each service category, for each year of analysis (PRODYs are the same for all countries).

• The sum of the GDP of countries exporting this service, weighted by their revealed comparative advantage. ij

ij ii

iji

i

xX

PRODY YxX

Service EXPY• EXPY is a proxy for the

income/productivity level to be expected from a particular service export basket.

• Construct EXPYs for each country, for each year of analysis.

• The sum of a country’s PRODYs, weighted by their share in the country’s service export basket.

iji j

j i

xEXPY PRODY

X

Difference Service EXPY and Goods EXPY

• Goods EXPY uses static PRODYs, i.e. PRODYs from one period of time. A change in Goods EXPY is hence a change in the country’s export basket.

• Service EXPY uses dynamic PRODYs. A change in Service EXPY is either due to changes in the export basket of the country or a change in the expected income/productivity level of a particular service.

• Two reasons:◦ The two aspects we want to capture◦ The high aggregation of service exports in

the data

Reasons for being cautious when using service export data

• The high level of aggregation

• A less straightforward recording system than for goods:◦ Within services◦ Between goods and services

◦ AREAS OF FUTURE EXPLORATION

Global PRODYs by category

PRODY growth rates

Transportation Travel Communication Construction Insurance Financial Computer Information

Royalties & license

fees

Other business

Personal & cultural

recreational

Average annual growth 1991-2000 4.40% 1.90% 4.40% -2.30% 6.90% 5.70% 6.90% 5.80% 4.70% 5.80%

Average annual growth 2000-07 2.50% 2.70% 2.30% 7.00% 0.60% 6.50% 3.90% 7.20% 5.80% 3.40%

Service Export Sophistication

Service EXPY as expected given GDP per capita in 1993

ThailandSingaporeIndia

ChinaMalaysia

8.4

8.6

8.8

99.2

ln_d

sexpy

4 6 8 10 12lngdppc

General shift upwards and relative decline for thailand, 2007

Thailand

SingaporeIndia

ChinaMalaysia

8.5

99.5

1010

.5ln_d

sexpy

6 7 8 9 10 11lngdppc

Data and specification

• 3 year panel 1990-2007

•Fixed Effect & Generalized Method of

Moment

• Number of countriesSpecification

Dynamic service EXPY and growth: 3 year panel, fixed effect and System GMM, 1990-2007

(dependent variable – GDP per capita growth)

Note: All equations include period dummies. Fixed effects include dummies for countries. GMM is the Blundell-Bond System-GMM estimator using lagged growth rates and levels as instruments. The GMM estimation also uses log population as additional instruments. * Significant at 10% level ** Significant at 5% level *** Significant at 1% level. Robust t-statistics are in parentheses.

FE System GMM

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

-0.03*** -0.03*** -0.04*** -0.04*** -0.04*** 0.002 0.004 0.008 0.01 0.007(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.02) (0.02) (0.02) (0.02)0.05*** 0.04*** 0.04*** 0.03*** 0.03*** 0.06*** 0.05*** 0.07*** 0.07** 0.08**(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.02) (0.03) (0.04)

0.05*** 0.03 0.01 0.01 -0.005 -0.01 -0.02 -0.02(0.02) (0.02) (0.02) (0.02) (0.07) (0.06) (0.05) (0.04)

log financial development 0.02*** 0.01* 0.01* -0.004 -0.008 -0.01(0.008) (0.008) (0.008) (0.02) (0.03) (0.03)

Trade (% of GDP) 0.04*** 0.04*** -0.002 -0.004(0.01) (0.01) (0.01) (0.01)

Rule of Law -0.006 0.01(0.007) (0.03)

-0.23*** -0.15* -0.18* -0.22** -0.22* -0.58*** -0.49*** -0.71*** -0.75*** -0.78***(0.08) (0.09) (0.10) (0.10) (0.10) (0.16) (0.16) (0.20) (0.25) (0.21)

R-squared 0.08 0.09 0.14 0.20 0.20428 421 375 370 370 428 421 375 370 370

Countries 108 106 95 95 95 108 106 95 95 95

Rho 0.80 0.71 0.81 0.86 0.87

0.24 0.32 0.49 0.38 0.23

0.002 0.002 0.001 0.002 0.002

Number of Instruments 7 10 10 10 12

Hansen J -statistic(p) valueSecond-order serial correlation (p-value)

observations

log lag initial GDP/cap

log lag initial service EXPY

log human capital

Constant

Dynamic service EXPY and growth: 3 year panel data regressions, 1990-2007(Controlling for Size of Service sector and Goods export sophistication)

(dependent variable – GDP per capita growth)

Note: All equations include period dummies. Fixed effects include dummies for countries. GMM is the Blundell-Bond System-GMM estimator using lagged growth rates and levels as instruments. The GMM estimation also uses log population as additional instruments. * Significant at 10% level ** Significant at 5% level *** Significant at 1% level. Robust t-statistics are in parentheses.

FE System GMM FE System GMM FE System GMM

(1) (2) (3) (4) (5) (6)

-0.04*** 0.009 -0.04*** -0.05*** -0.05*** -0.05***(0.01) (0.04) (0.01) (0.01) (0.01) (0.02)0.03*** 0.10* 0.03** 0.05* 0.03*** 0.06**(0.01) (0.05) (0.01) (0.03) (0.01) (0.03)0.0003 -0.02 -0.01 0.02 -0.02 0.03(0.02) (0.06) (0.02) (0.03) (0.02) (0.03)

log financial development 0.01** -0.01 0.01 0.03 0.01 0.03*(0.009) (0.04) (0.008) (0.01) (0.009) (0.01)

Trade (% of GDP) 0.04*** -0.006 0.04*** 0.01 0.04*** 0.007(0.01) (0.01) (0.01) (0.01) (0.01) (0.01)

Rule of Law -0.009 0.02 -0.006 0.03*** -0.01 0.04***(0.007) (0.04) (0.007) (0.01) (0.008) (0.01)

log service value added (% of GDP) 0.02* -0.06 0.02* 0.002 0.02* -0.009(0.01) (0.10) (0.009) (0.05) (0.01) (0.05)

log lag initial goods EXPY 0.02** 0.009 0.01** 0.007(0.009) (0.01) (0.009) (0.01)

Drop India No No No No Yes Yes

-0.27** -0.66 -0.28*** -0.38 -0.36 -0.38(0.12) (0.46) (0.11) (0.26) (0.13) (0.27)

R-squared 0.21 0.22 0.24357 357 362 349 345 345

Countries 93 93 95 93 92 92

Rho 0.90 0.90 0.92

0.54 0.40 0.27

0.02 0.004 0.005

Number of Instruments 12 38 38

(p) valueSecond-order serial correlation (p-value)

log lag initial GDP/cap

log lag initial service EXPY

log human capital

Constant

observations

Hansen J -statistic

Dynamic service EXPY and growth: 3 year panel data regressions, 1999-2007(Controlling for Size of Service sector and Goods export sophistication)

(dependent variable – GDP per capita growth)

FE System GMM

(1) (2) (3) (4) (5) (6) (7) (9) (10) (11) (12) (13) (14) (15)

-0.004 -0.001 -0.007 -0.01 -0.01 -0.02 -0.02 0.01 0.008 0.003 0.07 0.10 0.02 -0.03**(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.03) (0.04) (0.06) (0.10) (0.10) (0.01)0.03*** 0.03*** 0.03*** 0.03*** 0.03*** 0.03*** 0.04*** 0.08*** 0.09*** 0.08*** 0.16*** 0.17 0.21** 0.05*

(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.02) (0.02) (0.03) (0.05) (0.11) (0.09) (0.03)

-0.006 -0.007 -0.01 -0.01 -0.01 -0.02 0.03 0.04 -0.04 -0.10 -0.01 0.02(0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.05) (0.07) (0.11) (0.13) (0.11) (0.02)

log financial development 0.007 -0.001 -0.001 0.0001 -0.002 0.003 -0.05 -0.07 -0.09 0.01(0.009) (0.009) (0.009) (0.009) (0.01) (0.02) (0.04) (0.06) (0.07) (0.01)

Trade (% of GDP) 0.03*** 0.03*** 0.03*** 0.04*** -0.02 -0.03 -0.04 0.004(0.01) (0.01) (0.01) (0.01) (0.02) (0.04) (0.04) (0.01)

Rule of Law -0.006 -0.006 -0.009 0.006 0.01 0.01(0.007) (0.007) (0.008) (0.08) (0.07) (0.01)

log service value added (% of GDP) 0.009 0.01 0.17 0.05(0.01) (0.01) (0.18) (0.03)

log lag initial goods EXPY 0.007 0.01(0.008) (0.01)

-0.29*** -0.32*** -0.28*** -0.30*** -0.30*** -0.31*** -0.40*** -0.87*** -0.97*** -0.92*** -1.73*** -1.98*** -2.27*** -0.69***(0.08) (0.10) (0.11) (0.11) (0.11) (0.11) (0.12) (0.26) (0.25) (0.43) (0.51) (0.65) (0.83) (0.22)

R-squared 0.10 0.10 0.11 0.19 0.19 0.19 0.23233 228 228 224 224 221 213 233 228 228 224 224 221 213

Countries 74 72 72 71 71 71 70 74 72 72 71 71 71 70

Rho 0.62 0.63 0.69 0.84 0.84 0.85 0.90

0.07 0.05 0.07 0.56 0.77 0.88 0.13

0.02 0.03 0.05 0.07 0.07 0.05 0.04

Number of Instruments 7 10 10 10 12 12 38

Note: All equations include period dummies. Fixed effects include dummies for countries. GMM is the Blundell-Bond System-GMM estimator using lagged growth rates and levels as log population and log area as additional instruments. * Significant at 10% level ** Significant at 5% level *** instruments. The GMM estimation also uses log population and log area as additional instruments. * Significant at 10% level ** Significant at 5% level *** Significant at 1% level. Robust t-statistics are given in parentheses.

(p) valueSecond-order serial correlation (p-value)

log lag initial GDP/cap

log lag initial service EXPY

log human capital

Constant

observations

Hansen J -statistic

DYNAMIC SERVICE EXPY AND GROWTH: 3 YEAR PANEL DATA REGRESSIONS(SAMPLE: COUNTRIES WITH PER CAPITA INCOME BELOW US$ 10,000)

(DEPENDENT VARIABLE – GDP PER CAPITA GROWTH)

FUTURE OF SERVICES TRADE

Looking beyond….

1. NASSCOM/McKinsey type data within country, example

1997 2002 2004 20060%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BPO Service Exports IT Service exports

2. Mapping for Results

3. Benchmarking performance Service Exports Sophistication with determinants – Matrix method

(1) (2) (3) (4) (5) (6)

log lag initial GDP per capita 3.661*** 3.364*** 4.019*** 3.235*** 1.975*** 2.021***(0.19) (0.23) (0.25) (0.27) (0.29) (0.30)

years of schooling tertiary 0.938*** 0.911*** 0.849*** 0.642*** 0.113(0.13) (0.13) (0.13) (0.12) (0.18)

Overvaluation -0.49*** -0.28*** 0.01(0.08) (0.08) (0.08)

external Liberlization 0.489*** 0.148*(0.08) (0.08)

Information Flow 0.715*** 0.791***(0.07) (0.06)

lag initial Tertiary years of schooling*Information Flow 0.564***(0.09)

Constant 2.050*** 2.785*** 3.726*** 4.004*** 4.893*** 5.089***(0.383) (0.412) (0.485) (0.465) (0.440) (0.477)

Observations 816 676 605 562 562 551R-squared 0.337 0.462 0.524 0.576 0.639 0.621Number of countries 153 124 111 101 101 122

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