Description
The economic relevance of the services sector has been increasing for some decades. The shift to services translated into rising shares of this sector in total gross value added (GVA) and in total employment in most industrialized countries.
PORTUGUESE INTERNATIONAL TRADE IN SERVICES*
João Amador**
Sónia Cabral**
1. INTRODUCTION
The economic relevance of the services sector has been increasing for some decades. The shift to
services translated into rising shares of this sector in total gross value added (GVA) and in total em-
ployment in most industrialized countries (Chart 1). In addition, trade in services expanded rapidly
since the eighties, as technological changes allowed a strong growth of international exchanges of
electronically transmitted business services. However, the underlying assumption in classical eco-
nomic theory was that services were essentially non-tradable, as opposed to manufactured goods
which were considered tradable and thus subject to international competition. Nowadays, this distinc-
tion is still broadly valid, though the borderline between the two categories has clearly moved in a way
that more services became tradable. In fact, as discussed in Blinder (2006), the available technology –
especially in transportation, information and communications – largely determines what can be traded
internationally and what cannot. Sectors such as community, social and personal services, clearly re-
lated with the activity of general government, and wholesale and retail trade remain almost exclusively
non-tradable in the classical sense. Similarly, sectors like transportation, communications and tourism
Economic Bulletin | Banco de Portugal
Articles | Autumn 2009
213
* The authors thank Jorge Correia da Cunha for his comments. The opinions expressed in the article are those of the authors and do not necessarily coincide
with those of Banco de Portugal or the Eurosystem. Any errors and omissions are the sole responsibility of the authors.
** Banco de Portugal, Economics and Research Department.
Chart 1
SHARE OF THE SERVICES SECTOR IN THE ECONOMY
Employment
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10
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30
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80
90
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1980 2003
Sources: OECD-STAN database and authors’ calculations.
Note: France’s last year for employment data = 2002.
Gross value added
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90
K
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1980 2003
Sources: OECD-STAN database and authors’ calculations.
have a long tradition of a significant presence in international transactions. On the contrary, sectors like
financial services, computer and information services and other business services have been gaining
share in international trade as a result of the sharp progress in information and communication
technology. Thus, it is important to briefly summarize the main drivers of these structural changes.
Several simultaneously competing and complementary explanations have been presented in the liter-
ature to account for the rising share of services in GVAand employment.
1
The first explanation was ini-
tially proposed by Clark (1951), who argued that services satisfy higher needs than goods, i.e., the
so-called “hierarchy of needs” hypothesis. Under this hypothesis, the higher the income, the larger the
share used for the purchase of services. This would explain the higher relevance of services in GVA
and employment in higher income countries. Baumol (1967, 2001) challenged this interpretation, argu-
ing that the increase in the share of services employment is the result of a differential in productivity
growth and stating that, when measured at constant prices, the relative demand for services does not
depend on income. Nevertheless, since productivity in services increases less than in manufacturing,
the share of employment in services would be higher in high-income countries. In addition, if wages
evolve closely in the different sectors, i.e., not reflecting the differences in productivity, the share of ser-
vices in nominal output would also rise with income. The two arguments are complementary as they
provide explanations for the higher shares of services in both employment and output. The contradic-
tory point lies on the overall demand-income elasticity in services, though within each sector it is
possible to identify cases where such elasticity is higher or lower than one.
Acomplementary explanation for the shift to services is based on social preferences and the role of the
public sector in the economy. The long-run tendency for the public sector to growrelative to national in-
come is a stylized fact in public economics – the so-called “Wagner’s Law”. The Wagner’s Law has
been widely tested empirically with different results across countries and time periods, but it has
generally received ample support (see, for instance, Henrekson (1993) and Peacock and Scott
(2000)). This phenomenon can partly account for the increased share of services in employment and
output over time.
Another explanation for the rising share of services in output and employment is based on the organi-
zation of production in different sectors of the economy. In national accounts, firms are typically classi-
fied according to their main activity, regardless of other secondary activities carried out within the firm.
In addition, in labour market surveys, workers are classified not according to the specific characteris-
tics of their activity but rather on the sectoral classification of the workplace. In parallel, the reorganiza-
tion of production within firms has been changing and some activities are presently performed more
efficiently and cheaply through outsourcing (see Abraham and Taylor (1996)). Therefore, as this phe-
nomenon develops the share of output and employment in services activities increases. Nevertheless,
this is just the result of the reallocation of activities between sectors and not a change in the type of ac-
tivities that are carried out in the economy. In the same vein, the increased participation of women in
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(1) See Schettkat and Yocarini (2006) for an overview of the literature on the shift to services and ECB (2006) for a detailed analysis of the evolution of the
services sector in the euro area.
the labour market implied some outsourcing of domestic activities, increasing the share of services in
total employment and output.
The explanations for the increased importance of services in international trade are partly related with
the above trends and partly linked with the underlying reasons for the increase in the international
trade of manufactured goods (see Hoekman (2006) for an overviewof the liberalization of trade in ser-
vices). Firstly, advances in information and communication technologies are increasingly allowing
cross-border trade in services. Secondly, the overall reduction in political and economic trade barriers
and the participation of new countries in world trade stimulated imports and exports of services.
Thirdly, market liberalization in specific services sectors like airline, trucking and rail transportation in-
creased their international exchanges. Fourthly, globalization and the related mobility of capital and la-
bour lead to a strong expansion of trade in tourism, financial and communications services, also
contributing to increase their shares in domestic employment and output. Finally, the international frag-
mentation of production, with firms producing different stages of production in separate countries ac-
cording to local comparative advantages, has an impact in international trade of services because
several business services are outsourced to foreign countries (see Mankiw and Swagel (2006) for a
discussion).
This paper examines Portuguese international trade in services at a relatively disaggregated level over
the last two decades and taking a large set of countries as benchmark. It is organized as follows. Sec-
tion 2 describes the data used to analyse the evolution of Portuguese trade in services and discusses
some conceptual issues related with the definition of international trade in services. Section 3 exam-
ines the main trends in Portuguese trade in services over the last twenty years. The analysis of the
geographical and sectoral pattern of specialization of Portuguese exports of services is included in
Section 4. The traditional Balassa (1965) index of revealed comparative advantage is used to examine
the relative sectoral specialization of Portuguese exports of services. Finally, Section 5 presents some
concluding remarks.
2. SERVICES SPECIFICITIES AND DATA
The services sector has several specificities that lead to essential differences between trade in ser-
vices and trade in goods (see Hoekman and Mattoo (2008)). Firstly, services are intangible and hence
its international trade does not involve shipping, in contrast with goods transactions. As a conse-
quence, services are inherently more difficult to monitor, measure and tax. Secondly, services are
non-storable, so its production and consumption tend to occur simultaneously. Thirdly, services are
highly differentiated, as they are sometimes tailored to the needs of customers. In addition, all services
require some form of interaction between producer and user, the so-called joint production. It can be a
direct person-to-person contact (e.g., haircut), a telecommunication (e.g., internet banking) or an ex-
change of written documents. Some services may require the consumer to move to the location where
the services are supplied (e.g., tourism), while others may require the producer to move his location
(e.g., maintenance engineering). As a result, even with the strong improvements in information and
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communication technologies, services are still less tradable than goods.
Since services are intangible, in general, tariffs cannot be levied on services transactions, except for a
few activities like transportation and tourism. Therefore, barriers to trade in services are mostly
non-tariff barriers, like quotas, prohibitions and government regulations. These restrictions can take
the form of limits on the market shares of foreign providers of services or on the scope of their activi-
ties. Government regulations on the services sector often act as important barriers to trade. These reg-
ulations include, for instance, provisions on licensing and certification, technical and environmental
standards or government procurement and sourcing policies. In fact, as discussed in Conway and
Nicoletti (2006), services are the sectors in which most economic regulation is concentrated and
where domestic regulations are more relevant for economic activity. Several studies examine the im-
pact of barriers to trade in services and its process of liberalization, in particular after the General
Agreement on Trade in Services (GATS).
2
The GATS, which came into force in 1995, resulted fromthe
Uruguay Round and its implementation is under the aegis of the World Trade Organization. It extends
the multilateral trading system to the services sector, as the General Agreement on Tariffs and Trade
(GATT) does for merchandise trade. However, as discussed in Hoekman (2008), at present still little
progress has been made in liberalizing services trade and investment.
The intangible nature of trade in services also makes these flows very difficult to measure. As such,
finding efficient ways of collecting data on services international transactions is a statistical challenge.
There are several studies devoted to the measurement of trade in services (see, for instance, Lipsey
(2006) and Sturgeon et al. (2006)) and most country studies on trade in services also discuss this issue
in detail. In line with the classical approach to trade in services, balance of payments data is still the
main source used to measure international trade in services. Nevertheless, there is a broad consen-
sus that the growth of services trade is being significantly underestimated, as we will discuss in detail
below.
The literature on international trade in services is still limited when compared with the large number of
studies on international trade in goods. Part of the explanation for the relatively scarce literature re-
lates with the novelty of the phenomenon and with the difficulties in compiling and interpreting data on
international trade in services. Lejour and Smith (2008) edited a selection of papers on the globaliza-
tion of trade in services, which provides a useful summary of the main research issues. Several individ-
ual and cross-country studies on the pattern of specialization of exports of services have also been
produced in the recent years. For example, ECB (2008) presents an overview of services trade in the
euro area and other major exporters of services, Bensidoun and Unal Kesenci (2008) analyse the pat-
tern of trade in services of several OECD countries and Lee and Lloyd (2002) examine the relevance
of intra-industry trade in services for 20 individual OECDcountries. Afewrecent studies estimate grav-
ity equations for bilateral services trade, using large samples of countries and comparing themto those
of goods trade. Head et al. (2009) and Kimura and Lee (2006) find that the distance effect is more im-
portant for services than for goods, Ceglowski (2006) finds similar distance effects, while Lejour and
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(2) See Hoekman and Braga (1997) for a discussion of the several policies used to restrict trade in services.
Verheijden (2007) find that distance seems to be somewhat less important for trade in services than for
trade in goods in Europe.
3
The international outsourcing of services is another area where the empiri-
cal evidence is still scarce but further investigation is progressing fast (see Crinò (2009) for a reviewof
the literature on services offshoring). Amiti and Wei (2005, 2006), Liu and Trefler (2008), Geishecker
and Görg (2008) and Hijzen et al. (2007) are examples of empirical studies on the effects of services
offshoring, the latter using firm-level data. The studies on international trade in services using
firm-level data are even scarcer, given the lack of comparable data. Acouple of exceptions are Hijzen
et al. (2006) that analyse imports and exports of services at the firm-level in the UK, Breinlich and
Criscuolo (2008) that present a set of stylized facts on firms engaging in international trade in services
in the UK and Eickelpasch and Vogel (2009) that study the determinants of the export behaviour of
German services firms.
In this paper the source of data for international trade in services is the Balance of Payments services
account, which measures services transactions between resident and non-resident entities, in accor-
dance with the IMF (1993) Balance of Payments Manual (5th edition). This definition of international
trade in services is narrower than the one of GATS, which has broadened the statistical concept of
trade in services, moving away from an approach based on a subset of the balance of payments and
reflecting instead the modes by which services are supplied in practice.
In order to understand the consequences on the analysis arising fromalternative definitions of trade in
services, it is necessary to provide additional detail and examples. The UNet al. (2002) Manual on Sta-
tistics of International Trade in Services describes in detail the four modes through which services may
be traded internationally, taking into account the location of both suppliers and consumers of traded
services. Mode 1 (cross-border supply) applies when suppliers in one country provide services to con-
sumers in another country without either of them moving into the territory of the other. This mode is
similar to the traditional notion of trade in goods, where both the consumer and the supplier remain in
their respective territory. Freight transport services, correspondence courses and telediagnosis are
examples of cross-border supply of services. Mode 2 (consumption abroad) comprises the cases
when a consumer resident in one country moves to another country to obtain a service. Tourism ser-
vices and related activities are typical examples of consumption abroad. Medical treatment of non-res-
ident persons and language courses taken abroad are other examples of mode 2. Mode 3 (commercial
presence) includes the situations when firms supply services internationally through the activities of
their foreign affiliates. Medical services provided by a foreign-owned hospital and services supplied by
a domestic branch of a foreign bank are examples of supplies through commercial presence. Most
mode 3 services concern domestic sales of foreign affiliates that are not included in the Balance of
Payments services data, as they are considered transactions between residents. Statistics on foreign
affiliates trade in services (FATS) are the main sources of data on international trade in services
through mode 3. The main exception refers to short-term construction projects done by unincorpo-
rated site offices, which are recorded in the Balance of Payments under construction services. Mode 4
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(3) Grunfeld and Moxnes (2003) and Mirza and Nicoletti (2004) analyse bilateral services exports for large samples of countries using gravity models but with a
different focus. Both studies confirm the importance of size and distance for services exports.
(presence of natural persons) describes the process by which an individual moves temporarily to the
country of the consumer in order to provide a service. This mode of supply includes trade in services in
the Balance of Payments sense, like auditing services by a foreign auditor or entertainment services
by a foreign artist on tour in the host country. In addition, mode 4 also includes non-permanent
employment in the country of the consumer, which is recorded in the Balance of Payments as labour
income.
From the discussion above it results that the Balance of Payments trade in services broadly covers
modes 1, 2, a significant part of mode 4 and a small part of mode 3. Overall, the Portuguese trade in
services is being underestimating when it is measured as Balance of Payments transactions in ser-
vices. This underestimation can be significant since recent evidence points to the fact that foreign di-
rect investment (FDI) is an important channel for the international provision of services, as many of
them remain effectively non-tradable in the traditional sense (see Bensidoun and Unal Kesenci
(2008)). Nevertheless, services data based on the GATS approach was not fully available, so it was
not an option for this work.
The data used in this paper comes from the CHELEM Balance of Payments Database of the CEPII
(CHELEM-BAL), which reports balance of payments flows for around 200 individual countries and
geographical zones, covering the whole world.
4
The data is provided in current US dollars (millions)
and in accordance with the IMF (1993) Balance of Payments Manual (5th edition). The classification of
services follows the Extended Balance of Payments Services Classification (EBOPS) which contains
11 main components. The sample period starts in 1967 and ends in 2006, but the detailed information
on the different types of services is only available from 1995 onwards. In addition, bilateral data from
the Banco de Portugal Balance of Payments database is used to examine the geographical
specialization of Portuguese exports of services.
3. PORTUGUESE INTERNATIONAL TRADE IN SERVICES (1985-2006)
The services sector in Portugal increased its weight not only in GVAand employment but also in inter-
national trade, in line with the evolution observed in most industrialized countries (Chart 2). In fact, the
reduction of information and communication costs, the sharp increase in technological progress and
the removal of political and economic barriers to trade led to a significant growth of the international
transactions of services. Portuguese exports of services represent 28.3 per cent of total exports of
goods and services in the period 2001-2006, which compares to 26.1 per cent in the period
1981-1986. Greece, which is an economy typically associated with significant services exports, stands
out with a ratio of services exports in total exports of goods and services of 65.8 per cent in the average
of the 2001-2006 period. The ratio of Portuguese exports of services to GDP also increased, from 6.4
per cent in the average of the years 1981-1986 to 8.3 per cent in the period 2001-2006. In spite of this
increase, Portuguese exports of services as a ratio of GDPare still lower than in most European coun-
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(4) See Boumellassa and Unal Kesenci (2006) for a detailed description of this database.
tries, particularly in Ireland that shows a ratio above 25 per cent in 2001-2006. The growing importance
of internationally traded services in Ireland is partly linked with the significant presence of for-
eign-owned subsidiaries in the financial and high-technology sectors.
5
Other services export-oriented
economies in this period are Hong Kong and Singapore, with ratios close to 30 and 40 per cent,
respectively.
Portugal has been recording surpluses in the services account in the last decades, which contrasts
with the systematic deficits in the goods account. In the average of the period 1985-2006, the Portu-
guese services account showed a surplus of 1.9 per cent of GDP (Chart 3). In terms of total exports
and imports of services as a percentage of GDP, both flows have increased their importance in the Por-
tuguese economy and tended to move in the same direction in most years. The main contribution to
the positive balance in Portuguese international transactions of services came from the travel sector,
with an average surplus of 2.8 per cent of GDP over the last two decades, though with some decline in
the first half of the nineties. On the contrary, there was a reduction of the negative contribution of net
exports of other services since the nineties. In fact, the evolution of the balance of other services was
significant, from a deficit of 2.1 per cent of GDP in 1990 to a surplus of 0.6 per cent of GDP in 2006.
The market share of Portugal in world exports of services increased over the last decades. This fact
contrasts with the disappointing evolution of Portuguese export market shares of goods over the last
20 years.
6
Over the 1985-2006 period, Portuguese exports of services show a cumulative increase of
market share of 32.8 per cent in nominal terms (Chart 4). This cumulative growth of Portuguese export
share in services resulted mostly from gains obtained until the mid-nineties, since there was a stabili-
zation of market shares over the last decade. The increase of Portuguese market share is higher than
the one observed in Spain, where the export share in services increased by 20.7 per cent in cumulative
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Chart 2
EXPORTS OF SERVICES
Shares in GDP
0
5
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15
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25
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35
40
B
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1981-86 2001-06
Sources: CHELEM-BAL database and authors’ calculations.
Shares in total exports of goods and services
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M
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1981-86 2001-06
Sources: CHELEM-BAL database and authors’ calculations.
(5) See Grimes (2006) for a detailed analysis of the internationalisation of services activities in Ireland.
(6) See Amador and Cabral (2008) for an analysis of the evolution of Portuguese market shares in world exports of goods.
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Chart 3
PORTUGUESE SERVICES ACCOUNT
Exports and imports of services
-8
-6
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6
8
10
1985 1988 1991 1994 1997 2000 2003 2006
P
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Exports Imports Balance
Sources: CHELEM-BAL database and authors’ calculations.
Balances – travel versus other services
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4
1985 1988 1991 1994 1997 2000 2003 2006
P
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Travel Other services Total
Sources: CHELEM-BAL database and authors’ calculations.
Chart 4
MARKET SHARE IN WORLD EXPORTS OF SERVICES
Cumulative results in nominal terms
40
60
80
100
120
140
160
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
I
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d
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8
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Portugal Spain Austria Netherlands
Sources: CHELEM-BAL database and authors’ calculations.
40
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130
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
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Germany France UK Italy
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160
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
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US Canada Japan Australia
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100
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220
280
340
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460
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
I
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India China Hong Kong Korea Singapore
terms over the 1985-2006 period. Other European Union (EU) countries like Austria and the Nether-
lands recorded important cumulative losses in the same period. Regarding Greece and Ireland, the
data on exports of services is very volatile until the late nineties. Nevertheless, these countries are typi-
cal benchmarks for the Portuguese economy, so we computed the cumulative changes of market
share in the period 2000-2006. Ireland experienced a remarkably strong gain of market share in this
period (105.0 per cent), while the Greek economy recorded a modest cumulative increase (2.1 per
cent), lower than the one of Portugal in the same period (8.5 per cent).
The export market shares in services of large industrialized EUeconomies, like Germany and Italy, de-
clined by 18.0 and 28.4 per cent in cumulative terms between 1985 and 2006, respectively. In addition,
in France, there was a strong and sustained reduction of share in world exports of services since the
nineties, reaching a cumulative loss of more than 50 per cent in the period 1985-2006. On the contrary,
the UK recorded a cumulative increase in its market share in world services exports of 7.8 per cent in
this period. As for the group of extra-EU large industrialized economies, the export shares of the US
and Canada showed relatively similar paths over the 1985-2006 period, with cumulative losses of 17.5
and 13.1 per cent, respectively. The exports of services of Japan also lost market share over this pe-
riod (22.0 per cent), while Australia had a cumulative gain of 12.9 per cent from 1985 to 2006.
Emerging economies in East Asia gained substantial market shares in world exports of services over
the last two decades, similarly to what is observable in the goods markets. The nominal market share
of Hong Kong in world exports of services increased by 134.4 per cent in cumulative terms from 1985
to 2006, while Korea and Singapore had cumulative gains of share of more than 80 per cent in the
same period. Important players like China and India experienced impressive cumulative gains of 333.7
and 220.7 per cent, respectively. Nevertheless, the large scale of these economies and the low initial
shares in world services exports contributed to this path. Overall, the Portuguese economy performed
positively in terms of the evolution of services export shares. In the next section, we detail the analysis
of Portuguese exports of services by looking at the geographical and sectoral specialization,
comparing the latter with that of the world.
4. THE SPECIALIZATION PATTERN OF PORTUGUESE EXPORTS OF
SERVICES (1995-2006)
4.1. Geographical specialization
This subsection examines the main destination countries of Portuguese exports of services over the
1996-2006 period using data from the Banco de Portugal Balance of Payments database. Chart 5 in-
cludes a geographical breakdown of Portuguese exports of services, including the 15 trading partners
with a share above 1 per cent in the 2001-2006 period, which account together for more than 90 per
cent of total exports. Portuguese exports of services are mostly directed to other advanced European
countries, with the US, Brazil, Angola and Canada being the main exceptions. The set of top five desti-
nations of Portuguese exports of services coincides with that identified for the exports of goods, i.e.,
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Articles | Autumn 2009
221
UK, Spain, France, Germany and the US (in descending order of importance). Nevertheless, the rank-
ing of the main five partners in Portuguese exports of services is different from the one in exports of
goods, where Spain and Germany are the leading destinations. The main destination of Portuguese
exports of services is the UK and its share increased strongly over this decade, from 15.5 per cent in
the average of the period 1996-2000 to 18.7 per cent in the period 2001-2006. Spain is the second
main destination and its share also increased over this period, from12.9 per cent in 1996-2000 to 14.7
per cent in the most recent period. However, the proportion of Spain in total Portuguese exports of ser-
vices is much lower than the corresponding share observed in Portuguese exports of goods. France
and Germany are also important destinations of Portuguese exports of services, with shares of 13.8
and 10.8 per cent in 2001-2006, respectively, but their shares declined over this decade. The US is the
fifth major destination, but its share in total Portuguese exports of services decreased from9.1 percent
in 1996-2000 to 5.7 per cent in the most recent period. The shares of Belgiumand Canada in total Por-
tuguese exports of services also decreased by more than 1 percentage point over this period. On the
contrary, Portuguese exports of services to Ireland and Italy grew clearly above average.
Recently, a fewempirical studies applied the traditional gravity formulation to the international trade of
services and found evidence that geographical proximity tends to play a somewhat stronger role in ser-
vices than in goods (see Kimura and Lee (2006)). In the Portuguese case, the verification of this result
is not straightforward. On the one hand, the closest country (Spain) shows a higher importance in the
trade of goods than in the trade of services. On the other hand, not very distant European countries like
France, Belgium, Switzerland and the Netherlands present somewhat higher shares in Portuguese
exports of services than in exports of goods.
Chart 6 further examines the main trading partners of Portuguese exports of services by displaying the
composition of exports by destination country in the average of the 2001-2006 period. The travel sec-
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Autumn 2009 | Articles
222
Chart 5
MAIN TRADING PARTNERS IN PORTUGUESE
EXPORTS OF SERVICES
0
2
4
6
8
10
12
14
16
18
20
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Sources: Banco de Portugal Balance of Payments database and authors ’ calculations.
Chart 6
COMPOSITION OF PORTUGUESE EXPORTS OF
SERVICES TO MAIN TRADING PARTNERS,
AVERAGE 2001-2006
0
10
20
30
40
50
60
70
80
90
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Travel Transportation Other business services
Sources: Banco de Portugal Balance of Payments database and authors ’ calculations.
tor represents more than 50 per cent of total Portuguese exports of services to Germany, France,
Spain and the Netherlands, and more than 65 per cent in the case of the UK. Transportation is typically
the second largest type of services exported to these geographical destinations. This sector is espe-
cially important in Portuguese exports of services to Brazil, where it represents more than 40 per cent
of total. In the cases of Switzerlandand, in particular, Italy, other business services account for the larg-
est share of Portuguese exports of services to these countries.
4.2. Sectoral specialization and Balassa indices
This subsection is devoted to the sectoral specialization of Portuguese exports of services over the
1995-2006 period. It starts by examining the shares of each sector in total Portuguese exports of ser-
vices. In Portugal, three sectors have substantial shares in services exports (Table 1). Travel is the most
important sector, representing more than 50 per cent of Portuguese exports of services in the average of
the 1995-2006 period. However, there was a significant reduction of the share of this sector in total ex-
ports in the last years, in particular since 2001. In contrast, the share of the second most relevant sector in
Portuguese exports of services, the transportation sector, increased since 1999, accounting for around
20 per cent of total in the most recent period. Portuguese exports of transport services include mostly air
transport of passengers but exports of freight services increased strongly over this period, in particular in
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223
Table 1
STRUCTURE OF PORTUGUESE EXPORTS OF SERVICES BY MAIN CATEGORIES
Shares as a percentage of total exports of services
Shares in Portuguese exports
1995-2000 2001-2006 1995-2006
Transportation (205) 17.4 19.9 19.0
of which: Air transport, Passenger (211) 9.5 8.4 8.8
Other transport, Freight (216) 2.3 4.6 3.7
Travel (236) 59.3 52.2 54.9
Communications services (245) 2.9 3.2 3.1
of which: Telecommunications (247) 2.7 2.9 2.8
Construction services (249) 2.5 2.6 2.6
Insurance services (253) 0.8 0.7 0.8
Financial services (260) 2.7 1.4 1.9
Computer and information services (262) 0.6 0.9 0.8
of which: Computer services (263) 0.6 0.9 0.8
Royalties and license fees (266) 0.3 0.3 0.3
Other business services (268) 11.0 16.2 14.2
of which: Merchanting (269) 4.8 7.4 6.4
Miscellaneous business services (273) 5.9 8.4 7.4
Personal, cultural and recreational services (287) 1.4 1.3 1.3
Government services (291) 1.1 1.2 1.2
Other services not elsewhere specified (nes) 0.0 0.0 0.0
Sources: CHELEM-BAL database and authors’ calculations.
Note: Extended Balance of Payments Services Classification (EBOPS) codes in parenthesis.
road transport freights. Portuguese exports of other business services also grewstrongly over the last ten
years, corresponding to more than 16 per cent of total exports of services in the 2001-2006 period. Portu-
guese exports of merchanting and other trade-related services increased strongly since 1999, reaching
7.4 per cent of total exports in the most recent period. Legal, accounting, management consulting and
public relations services and architectural, engineering and other technical services also represent a ris-
ing share of Portuguese exports of services. As regards other categories of services, there was a slight
increase of the shares of communications services and of construction services in Portuguese exports
over this period. The increase of the export proportion of communications services is mostly associated
with telecommunications. There was also an increase of the relative importance of computer and infor-
mation services, due to higher exports of computer services, though they still represent a small propor-
tion of exports in the most recent period. On the contrary, there was a significant reduction of the share of
exports of financial services, from 2.7 per cent in 1995-2000 to 1.4 per cent in 2001-2006.
The evolution of the Portuguese export structure of services must be placed in perspective against the
world average to evaluate the relative specialisation of Portugal and to identify the comparative advan-
tages revealed ex-post by international trade. For that purpose, the analysis of the specialization of Por-
tuguese exports of services is developed through the computation of the traditional Balassa (1965) index
of revealed comparative advantages, as it is usually done for international trade in goods.
7
The Balassa
index is defined as the ratio between the share of a given sector in total exports of the country under anal-
ysis and the share of that sector in total world exports. If the indicator reaches a value higher than 1, then
the country is classified as being relatively more specialized in that sector, that is, as having a revealed
comparative advantage in the sector.
Portugal reveals a clear and sustained comparative advantage in the travel sector over the last decade
(Table 2). The sector of communications services has also high specialization coefficients over the sam-
ple period, although smaller than those observed in the travel sector. Portuguese exports of services are
also relatively specialized in personal, cultural and recreational services, but some reduction of the
Balassa indices is observed over the period. On the contrary, there was an increase of the Portuguese
specialization in construction services, which resulted in Balassa indices above 1 since 2001. All other
services sectors have indices lower than 1 in the average of the periods analysed.
The analysis of the relative specialization of Portuguese exports of services can be enhanced by taking a
set of countries as a benchmark, thereby investigating their relative behaviours. Table 3 presents the
Balassa indices of the main sectors in Portugal, in other EUcountries and in several non-European coun-
tries, including some developing Asian countries, in the period 2001-2006. Starting with the comparison
between Portugal and the other initial EU Cohesion Fund beneficiaries (Spain, Greece and Ireland),
there are contrasting situations. Comparing Portugal and Spain, some similarities are evident, namely
the strong specialization of both countries in the travel sector. However, in the cases of Greece and, es-
pecially, of Ireland the differences in terms of relative specialization are remarkable. In Ireland, the shares
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224
(7) However, in this case the results of the Balassa index reflect only part of Portuguese international trade in services. As mentioned previously, our definition
of international trade in services is limited to the international transactions included in the balance of payments services account, thus not taking into
consideration other modes of supplying foreign markets.
of computer and information services and of insurance services in total exports of services are much
higher than the world average, resulting in extremely high specialization coefficients. Irish exports are
also relatively specialized in financial services, but to a much lesser extent than in the two previous cate-
gories. As regards Greece, its exports of services are mainly concentrated in two categories: transporta-
tion and travel. In particular, the proportion of the sector of transportation services in Greek exports is
more than twice the world average in the period 2001-2006.
In what concerns other countries, the cases in which we detect the higher indices of revealed compara-
tive advantage in the 2001-2006 period include several situations that have been separately documented
in the literature. For example, the US and Japan have strong revealed comparative advantages in royal-
ties and licence fees. In addition, Japan and Germany present high Balassa indices in construction ser-
vices. In Canada, the shares of personal, cultural and recreational services and of insurance services in
total exports are much higher than the world average, resulting in strong specialization coefficients. The
UK, a leading world financial market, shows a very high revealed comparative advantage in financial ser-
vices. Korea and, to a lesser extent, Singapore stand out for their specialization in the transportation sec-
tor. Singapore is also relatively specialized in other business services and in insurance services, while the
highest specialization coefficients of Hong Kong are in other business services, financial services and
transportation services. Finally, India is identified by its widely debated and extremely strong revealed
comparative advantage in computer and information services, showing the highest Balassa index of Ta-
ble 3. In contrast, China’s exports of services seem more broad-based, with Balassa indices above 1 in
travel, construction services and other business services.
8
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225
Table 2
THE SPECIALIZATION OF PORTUGUESE AND WORLD EXPORTS OF SERVICES BY MAIN CATEGORIES
Shares as a percentage of total exports of services and Balassa indices
Shares in Portuguese
exports
Shares in world
exports
Balassa indices
1995-
2000
2001-
2006
1995-
2006
1995-
2000
2001-
2006
1995-
2006
1995-
2000
2001-
2006
1995-
2006
Transportation (205) 17.4 19.9 19.0 22.9 21.4 22.0 0.8 0.9 0.9
Travel (236) 59.3 52.2 54.9 31.4 27.5 29.0 1.9 1.9 1.9
Communications services (245) 2.9 3.2 3.1 2.0 2.2 2.1 1.4 1.4 1.4
Construction services (249) 2.5 2.6 2.6 2.6 2.0 2.2 1.0 1.3 1.2
Insurance services (253) 0.8 0.7 0.8 1.8 2.3 2.1 0.5 0.3 0.4
Financial services (260) 2.7 1.4 1.9 4.5 6.2 5.5 0.6 0.2 0.3
Computer and information services (262) 0.6 0.9 0.8 1.8 4.1 3.2 0.3 0.2 0.3
Royalties and license fees (266) 0.3 0.3 0.3 4.7 5.0 4.9 0.1 0.1 0.1
Other business services (268) 11.0 16.2 14.2 22.3 23.6 23.1 0.5 0.7 0.6
Personal, cultural and recreational services (287) 1.4 1.3 1.3 1.1 1.2 1.2 1.3 1.1 1.1
Government services (291) 1.1 1.2 1.2 3.3 2.6 2.9 0.3 0.5 0.4
Other services not elsewhere specified (nes) 0.0 0.0 0.0 1.5 1.8 1.7 0.0 0.0 0.0
Sources: CHELEM-BAL database and authors’ calculations.
Notes: Extended Balance of Payments Services Classification (EBOPS) codes in parenthesis. All Balassa indices higher than 1 are highlighted.
(8) See Bussière and Mehl (2008) for a detailed analysis of the integration of India and China in world markets.
2
2
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Table 3
THE RELATIVE SPECIALIZATION OF EXPORTS OF SERVICES – BALASSA INDICES
Average 2001-2006
Portugal Spain Ireland Greece Italy Germany France UK Netherlands
Memo item:
Share in total world exports of services 0.6 3.8 2.2 1.3 3.7 6.3 4.9 8.4 3.2
Transportation (205) 0.9 0.8 0.2 2.2 0.7 1.1 1.1 0.7 1.3
Travel (236) 1.9 1.9 0.3 1.5 1.5 0.7 1.4 0.5 0.5
Communications services (245) 1.4 0.7 0.7 0.5 1.1 1.0 1.2 1.3 1.9
Construction services (249) 1.3 0.8 0.0 0.4 1.3 2.6 1.6 0.2 1.9
Insurance services (253) 0.3 0.3 7.1 0.3 0.8 1.4 0.5 1.7 0.2
Financial services (260) 0.2 0.5 1.6 0.1 0.2 0.6 0.2 3.2 0.2
Computer and information services (262) 0.2 0.9 8.2 0.1 0.2 1.3 0.3 1.3 1.0
Royalties and license fees (266) 0.1 0.1 0.2 0.0 0.2 0.8 0.9 1.3 0.9
Other business services (268) 0.7 0.8 1.0 0.2 1.3 1.2 1.0 1.2 1.5
Personal, cultural and recreational services (287) 1.1 0.9 0.5 1.0 0.8 0.5 1.5 1.5 0.8
Government services (291) 0.5 0.3 0.3 0.1 0.5 1.9 0.3 0.7 1.0
Other services not elsewhere specified (nes) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Portugal US Canada Japan India China Hong Kong Korea Singapore
Memo item:
Share in total world exports of services 0.6 16.1 2.3 4.3 1.8 2.8 2.6 1.8 2.0
Transportation (205) 0.9 0.8 0.8 1.6 0.5 0.9 1.4 2.4 1.8
Travel (236) 1.9 1.0 0.9 0.3 0.5 1.5 0.6 0.6 0.4
Communications services (245) 1.4 0.7 1.7 0.3 1.6 0.4 0.6 0.5 0.5
Construction services (249) 1.3 0.5 0.2 3.6 0.6 1.5 0.4 0.1 0.6
Insurance services (253) 0.3 0.8 2.8 0.3 0.7 0.3 0.3 0.1 1.2
Financial services (260) 0.2 1.2 0.4 0.8 0.4 0.0 1.6 0.5 0.9
Computer and information services (262) 0.2 0.5 1.6 0.3 10.2 0.6 0.1 0.0 0.3
Royalties and license fees (266) 0.1 3.0 1.2 3.2 0.0 0.1 0.1 0.8 0.2
Other business services (268) 0.7 0.8 1.1 1.0 1.0 1.3 1.7 0.9 1.6
Personal, cultural and recreational services (287) 1.1 1.7 2.9 0.1 0.1 0.1 0.3 0.4 0.3
Government services (291) 0.5 2.1 0.9 0.7 0.3 0.3 0.0 1.2 0.1
Other services not elsewhere specified (nes) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Sources: CHELEM-BAL database and authors’ calculations.
Notes: Extended Balance of Payments Services Classification (EBOPS) codes in parenthesis. All Balassa indices higher than 1 are highlighted.
5. CONCLUSIONS
Over the last decades, there has been a general trend of sectoral re-allocation towards the services
sector in most developed countries. The share of the services sector in the Portuguese economy in-
creased over the last two decades, reaching 70.4 percent of total gross value added and 60.3 per cent
of total employment in 2003 (55.5 per cent and 42.6 per cent in 1980, respectively). In addition, Portu-
gal has accompanied the trend of growing importance of services exports, which presently represent
more than 28 per cent of total Portuguese exports.
This paper characterizes Portuguese international trade in services over the last two decades, defined
as the cross-border flows included in the balance of payments services account. A comparative per-
spective of the main features of Portuguese trade in services is provided, as most of the analysis is
carried out considering also other countries as benchmarks.
Travel is the most important sector in Portuguese trade in services and it has been a major factor be-
hind the maintenance of an average surplus in the services account close to 2 per cent of GDP in the
last two decades. Nevertheless, the contribution of net exports of other services has progressively
moved from clearly negative in 1990 to slightly positive in 2006.
The market share of Portuguese exports of services behaved favourably over the last decades, in con-
trast with the disappointing evolution of export shares of goods. Over the last two decades, the nominal
rate of change of Portuguese exports of services was higher than that of world services exports, lead-
ing to a cumulative increase of market share of 32.8 per cent from 1985 to 2006. This increase is
higher than those observed in several European countries, but much smaller than those registered in
some developing Asian economies.
Portuguese exports of services are mostly directed to other advanced European countries, with the
main five destinations matching those of exports of goods, though with a different ranking. The main
destination of Portuguese exports of services is the UK and its share in total exports increased strongly
to 18.7 per cent in the 2001-2006 period. The travel sector constitutes the bulk of Portuguese exports
of services to the UK, representing more than 65 per cent of total in this period. Spain is the second
main destination of Portuguese exports of services, with a share of 14.7 per cent in the most recent pe-
riod, which is much lower than the corresponding share observed in Portuguese exports of goods.
France and Germany are also important destinations of Portuguese exports of services, accounting
individually for more than 10 per cent of total.
The travel sector is the most important sector in Portuguese exports of services, representing more
than 50 per cent of total. However, the share of this sector declined over the last years, in particular
since 2001. The second most relevant sector in Portuguese exports of services is the transportation
sector, with a share of around 20 per cent in the 2001-2006 period, while exports of other business ser-
vices account for more than 16 per cent of total exports in this period. In contrast with the evolution ob-
served in the travel sector, there was a significant increase in the shares of these two sectors in total
Economic Bulletin | Banco de Portugal
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227
Portuguese exports of services over the last years.
Portugal has a clear and sustained comparative advantage in travel services over the last decade, as
measured by the Balassa index. The sector of communications services has also high Balassa indices
over this period, although smaller than those observed in the travel sector. In the period 2001-2006,
Portuguese exports of services are also relatively specialized in construction services and in personal,
cultural and recreational services. Comparing Portugal and Spain, some similarities are evident in
terms of relative export structures, namely the strong specialization of both countries in the travel sec-
tor. In the cases of Greece and, especially, of Ireland the differences are substantial. Ireland has ex-
tremely high specialization coefficients in computer and information services and in insurance
services, while the share of transportation services in Greek exports is more than twice the world aver-
age. In addition, we identify several country-specific features that have been separately documented
in the literature. The UK stands out for its specialization in financial services and Germany has high
Balassa indices in construction services. The US and Japan have strong revealed comparative advan-
tages in royalties and licence fees, while Korea has a strong specialization in the transportation sector.
In India, the shares of computer and information services in total exports are remarkably higher than
the world average, resulting in the highest Balassa index of all countries and sectors considered.
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producer services: Firm-level evidence”, Research Paper Series 2007/37, Leverhulme Centre
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outsourcing to China and India”, NBER Working Paper 14061, National Bureau of Economic
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The economic relevance of the services sector has been increasing for some decades. The shift to services translated into rising shares of this sector in total gross value added (GVA) and in total employment in most industrialized countries.
PORTUGUESE INTERNATIONAL TRADE IN SERVICES*
João Amador**
Sónia Cabral**
1. INTRODUCTION
The economic relevance of the services sector has been increasing for some decades. The shift to
services translated into rising shares of this sector in total gross value added (GVA) and in total em-
ployment in most industrialized countries (Chart 1). In addition, trade in services expanded rapidly
since the eighties, as technological changes allowed a strong growth of international exchanges of
electronically transmitted business services. However, the underlying assumption in classical eco-
nomic theory was that services were essentially non-tradable, as opposed to manufactured goods
which were considered tradable and thus subject to international competition. Nowadays, this distinc-
tion is still broadly valid, though the borderline between the two categories has clearly moved in a way
that more services became tradable. In fact, as discussed in Blinder (2006), the available technology –
especially in transportation, information and communications – largely determines what can be traded
internationally and what cannot. Sectors such as community, social and personal services, clearly re-
lated with the activity of general government, and wholesale and retail trade remain almost exclusively
non-tradable in the classical sense. Similarly, sectors like transportation, communications and tourism
Economic Bulletin | Banco de Portugal
Articles | Autumn 2009
213
* The authors thank Jorge Correia da Cunha for his comments. The opinions expressed in the article are those of the authors and do not necessarily coincide
with those of Banco de Portugal or the Eurosystem. Any errors and omissions are the sole responsibility of the authors.
** Banco de Portugal, Economics and Research Department.
Chart 1
SHARE OF THE SERVICES SECTOR IN THE ECONOMY
Employment
0
10
20
30
40
50
60
70
80
90
P
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1980 2003
Sources: OECD-STAN database and authors’ calculations.
Note: France’s last year for employment data = 2002.
Gross value added
0
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20
30
40
50
60
70
80
90
K
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e
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1980 2003
Sources: OECD-STAN database and authors’ calculations.
have a long tradition of a significant presence in international transactions. On the contrary, sectors like
financial services, computer and information services and other business services have been gaining
share in international trade as a result of the sharp progress in information and communication
technology. Thus, it is important to briefly summarize the main drivers of these structural changes.
Several simultaneously competing and complementary explanations have been presented in the liter-
ature to account for the rising share of services in GVAand employment.
1
The first explanation was ini-
tially proposed by Clark (1951), who argued that services satisfy higher needs than goods, i.e., the
so-called “hierarchy of needs” hypothesis. Under this hypothesis, the higher the income, the larger the
share used for the purchase of services. This would explain the higher relevance of services in GVA
and employment in higher income countries. Baumol (1967, 2001) challenged this interpretation, argu-
ing that the increase in the share of services employment is the result of a differential in productivity
growth and stating that, when measured at constant prices, the relative demand for services does not
depend on income. Nevertheless, since productivity in services increases less than in manufacturing,
the share of employment in services would be higher in high-income countries. In addition, if wages
evolve closely in the different sectors, i.e., not reflecting the differences in productivity, the share of ser-
vices in nominal output would also rise with income. The two arguments are complementary as they
provide explanations for the higher shares of services in both employment and output. The contradic-
tory point lies on the overall demand-income elasticity in services, though within each sector it is
possible to identify cases where such elasticity is higher or lower than one.
Acomplementary explanation for the shift to services is based on social preferences and the role of the
public sector in the economy. The long-run tendency for the public sector to growrelative to national in-
come is a stylized fact in public economics – the so-called “Wagner’s Law”. The Wagner’s Law has
been widely tested empirically with different results across countries and time periods, but it has
generally received ample support (see, for instance, Henrekson (1993) and Peacock and Scott
(2000)). This phenomenon can partly account for the increased share of services in employment and
output over time.
Another explanation for the rising share of services in output and employment is based on the organi-
zation of production in different sectors of the economy. In national accounts, firms are typically classi-
fied according to their main activity, regardless of other secondary activities carried out within the firm.
In addition, in labour market surveys, workers are classified not according to the specific characteris-
tics of their activity but rather on the sectoral classification of the workplace. In parallel, the reorganiza-
tion of production within firms has been changing and some activities are presently performed more
efficiently and cheaply through outsourcing (see Abraham and Taylor (1996)). Therefore, as this phe-
nomenon develops the share of output and employment in services activities increases. Nevertheless,
this is just the result of the reallocation of activities between sectors and not a change in the type of ac-
tivities that are carried out in the economy. In the same vein, the increased participation of women in
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Autumn 2009 | Articles
214
(1) See Schettkat and Yocarini (2006) for an overview of the literature on the shift to services and ECB (2006) for a detailed analysis of the evolution of the
services sector in the euro area.
the labour market implied some outsourcing of domestic activities, increasing the share of services in
total employment and output.
The explanations for the increased importance of services in international trade are partly related with
the above trends and partly linked with the underlying reasons for the increase in the international
trade of manufactured goods (see Hoekman (2006) for an overviewof the liberalization of trade in ser-
vices). Firstly, advances in information and communication technologies are increasingly allowing
cross-border trade in services. Secondly, the overall reduction in political and economic trade barriers
and the participation of new countries in world trade stimulated imports and exports of services.
Thirdly, market liberalization in specific services sectors like airline, trucking and rail transportation in-
creased their international exchanges. Fourthly, globalization and the related mobility of capital and la-
bour lead to a strong expansion of trade in tourism, financial and communications services, also
contributing to increase their shares in domestic employment and output. Finally, the international frag-
mentation of production, with firms producing different stages of production in separate countries ac-
cording to local comparative advantages, has an impact in international trade of services because
several business services are outsourced to foreign countries (see Mankiw and Swagel (2006) for a
discussion).
This paper examines Portuguese international trade in services at a relatively disaggregated level over
the last two decades and taking a large set of countries as benchmark. It is organized as follows. Sec-
tion 2 describes the data used to analyse the evolution of Portuguese trade in services and discusses
some conceptual issues related with the definition of international trade in services. Section 3 exam-
ines the main trends in Portuguese trade in services over the last twenty years. The analysis of the
geographical and sectoral pattern of specialization of Portuguese exports of services is included in
Section 4. The traditional Balassa (1965) index of revealed comparative advantage is used to examine
the relative sectoral specialization of Portuguese exports of services. Finally, Section 5 presents some
concluding remarks.
2. SERVICES SPECIFICITIES AND DATA
The services sector has several specificities that lead to essential differences between trade in ser-
vices and trade in goods (see Hoekman and Mattoo (2008)). Firstly, services are intangible and hence
its international trade does not involve shipping, in contrast with goods transactions. As a conse-
quence, services are inherently more difficult to monitor, measure and tax. Secondly, services are
non-storable, so its production and consumption tend to occur simultaneously. Thirdly, services are
highly differentiated, as they are sometimes tailored to the needs of customers. In addition, all services
require some form of interaction between producer and user, the so-called joint production. It can be a
direct person-to-person contact (e.g., haircut), a telecommunication (e.g., internet banking) or an ex-
change of written documents. Some services may require the consumer to move to the location where
the services are supplied (e.g., tourism), while others may require the producer to move his location
(e.g., maintenance engineering). As a result, even with the strong improvements in information and
Economic Bulletin | Banco de Portugal
Articles | Autumn 2009
215
communication technologies, services are still less tradable than goods.
Since services are intangible, in general, tariffs cannot be levied on services transactions, except for a
few activities like transportation and tourism. Therefore, barriers to trade in services are mostly
non-tariff barriers, like quotas, prohibitions and government regulations. These restrictions can take
the form of limits on the market shares of foreign providers of services or on the scope of their activi-
ties. Government regulations on the services sector often act as important barriers to trade. These reg-
ulations include, for instance, provisions on licensing and certification, technical and environmental
standards or government procurement and sourcing policies. In fact, as discussed in Conway and
Nicoletti (2006), services are the sectors in which most economic regulation is concentrated and
where domestic regulations are more relevant for economic activity. Several studies examine the im-
pact of barriers to trade in services and its process of liberalization, in particular after the General
Agreement on Trade in Services (GATS).
2
The GATS, which came into force in 1995, resulted fromthe
Uruguay Round and its implementation is under the aegis of the World Trade Organization. It extends
the multilateral trading system to the services sector, as the General Agreement on Tariffs and Trade
(GATT) does for merchandise trade. However, as discussed in Hoekman (2008), at present still little
progress has been made in liberalizing services trade and investment.
The intangible nature of trade in services also makes these flows very difficult to measure. As such,
finding efficient ways of collecting data on services international transactions is a statistical challenge.
There are several studies devoted to the measurement of trade in services (see, for instance, Lipsey
(2006) and Sturgeon et al. (2006)) and most country studies on trade in services also discuss this issue
in detail. In line with the classical approach to trade in services, balance of payments data is still the
main source used to measure international trade in services. Nevertheless, there is a broad consen-
sus that the growth of services trade is being significantly underestimated, as we will discuss in detail
below.
The literature on international trade in services is still limited when compared with the large number of
studies on international trade in goods. Part of the explanation for the relatively scarce literature re-
lates with the novelty of the phenomenon and with the difficulties in compiling and interpreting data on
international trade in services. Lejour and Smith (2008) edited a selection of papers on the globaliza-
tion of trade in services, which provides a useful summary of the main research issues. Several individ-
ual and cross-country studies on the pattern of specialization of exports of services have also been
produced in the recent years. For example, ECB (2008) presents an overview of services trade in the
euro area and other major exporters of services, Bensidoun and Unal Kesenci (2008) analyse the pat-
tern of trade in services of several OECD countries and Lee and Lloyd (2002) examine the relevance
of intra-industry trade in services for 20 individual OECDcountries. Afewrecent studies estimate grav-
ity equations for bilateral services trade, using large samples of countries and comparing themto those
of goods trade. Head et al. (2009) and Kimura and Lee (2006) find that the distance effect is more im-
portant for services than for goods, Ceglowski (2006) finds similar distance effects, while Lejour and
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216
(2) See Hoekman and Braga (1997) for a discussion of the several policies used to restrict trade in services.
Verheijden (2007) find that distance seems to be somewhat less important for trade in services than for
trade in goods in Europe.
3
The international outsourcing of services is another area where the empiri-
cal evidence is still scarce but further investigation is progressing fast (see Crinò (2009) for a reviewof
the literature on services offshoring). Amiti and Wei (2005, 2006), Liu and Trefler (2008), Geishecker
and Görg (2008) and Hijzen et al. (2007) are examples of empirical studies on the effects of services
offshoring, the latter using firm-level data. The studies on international trade in services using
firm-level data are even scarcer, given the lack of comparable data. Acouple of exceptions are Hijzen
et al. (2006) that analyse imports and exports of services at the firm-level in the UK, Breinlich and
Criscuolo (2008) that present a set of stylized facts on firms engaging in international trade in services
in the UK and Eickelpasch and Vogel (2009) that study the determinants of the export behaviour of
German services firms.
In this paper the source of data for international trade in services is the Balance of Payments services
account, which measures services transactions between resident and non-resident entities, in accor-
dance with the IMF (1993) Balance of Payments Manual (5th edition). This definition of international
trade in services is narrower than the one of GATS, which has broadened the statistical concept of
trade in services, moving away from an approach based on a subset of the balance of payments and
reflecting instead the modes by which services are supplied in practice.
In order to understand the consequences on the analysis arising fromalternative definitions of trade in
services, it is necessary to provide additional detail and examples. The UNet al. (2002) Manual on Sta-
tistics of International Trade in Services describes in detail the four modes through which services may
be traded internationally, taking into account the location of both suppliers and consumers of traded
services. Mode 1 (cross-border supply) applies when suppliers in one country provide services to con-
sumers in another country without either of them moving into the territory of the other. This mode is
similar to the traditional notion of trade in goods, where both the consumer and the supplier remain in
their respective territory. Freight transport services, correspondence courses and telediagnosis are
examples of cross-border supply of services. Mode 2 (consumption abroad) comprises the cases
when a consumer resident in one country moves to another country to obtain a service. Tourism ser-
vices and related activities are typical examples of consumption abroad. Medical treatment of non-res-
ident persons and language courses taken abroad are other examples of mode 2. Mode 3 (commercial
presence) includes the situations when firms supply services internationally through the activities of
their foreign affiliates. Medical services provided by a foreign-owned hospital and services supplied by
a domestic branch of a foreign bank are examples of supplies through commercial presence. Most
mode 3 services concern domestic sales of foreign affiliates that are not included in the Balance of
Payments services data, as they are considered transactions between residents. Statistics on foreign
affiliates trade in services (FATS) are the main sources of data on international trade in services
through mode 3. The main exception refers to short-term construction projects done by unincorpo-
rated site offices, which are recorded in the Balance of Payments under construction services. Mode 4
Economic Bulletin | Banco de Portugal
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217
(3) Grunfeld and Moxnes (2003) and Mirza and Nicoletti (2004) analyse bilateral services exports for large samples of countries using gravity models but with a
different focus. Both studies confirm the importance of size and distance for services exports.
(presence of natural persons) describes the process by which an individual moves temporarily to the
country of the consumer in order to provide a service. This mode of supply includes trade in services in
the Balance of Payments sense, like auditing services by a foreign auditor or entertainment services
by a foreign artist on tour in the host country. In addition, mode 4 also includes non-permanent
employment in the country of the consumer, which is recorded in the Balance of Payments as labour
income.
From the discussion above it results that the Balance of Payments trade in services broadly covers
modes 1, 2, a significant part of mode 4 and a small part of mode 3. Overall, the Portuguese trade in
services is being underestimating when it is measured as Balance of Payments transactions in ser-
vices. This underestimation can be significant since recent evidence points to the fact that foreign di-
rect investment (FDI) is an important channel for the international provision of services, as many of
them remain effectively non-tradable in the traditional sense (see Bensidoun and Unal Kesenci
(2008)). Nevertheless, services data based on the GATS approach was not fully available, so it was
not an option for this work.
The data used in this paper comes from the CHELEM Balance of Payments Database of the CEPII
(CHELEM-BAL), which reports balance of payments flows for around 200 individual countries and
geographical zones, covering the whole world.
4
The data is provided in current US dollars (millions)
and in accordance with the IMF (1993) Balance of Payments Manual (5th edition). The classification of
services follows the Extended Balance of Payments Services Classification (EBOPS) which contains
11 main components. The sample period starts in 1967 and ends in 2006, but the detailed information
on the different types of services is only available from 1995 onwards. In addition, bilateral data from
the Banco de Portugal Balance of Payments database is used to examine the geographical
specialization of Portuguese exports of services.
3. PORTUGUESE INTERNATIONAL TRADE IN SERVICES (1985-2006)
The services sector in Portugal increased its weight not only in GVAand employment but also in inter-
national trade, in line with the evolution observed in most industrialized countries (Chart 2). In fact, the
reduction of information and communication costs, the sharp increase in technological progress and
the removal of political and economic barriers to trade led to a significant growth of the international
transactions of services. Portuguese exports of services represent 28.3 per cent of total exports of
goods and services in the period 2001-2006, which compares to 26.1 per cent in the period
1981-1986. Greece, which is an economy typically associated with significant services exports, stands
out with a ratio of services exports in total exports of goods and services of 65.8 per cent in the average
of the 2001-2006 period. The ratio of Portuguese exports of services to GDP also increased, from 6.4
per cent in the average of the years 1981-1986 to 8.3 per cent in the period 2001-2006. In spite of this
increase, Portuguese exports of services as a ratio of GDPare still lower than in most European coun-
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218
(4) See Boumellassa and Unal Kesenci (2006) for a detailed description of this database.
tries, particularly in Ireland that shows a ratio above 25 per cent in 2001-2006. The growing importance
of internationally traded services in Ireland is partly linked with the significant presence of for-
eign-owned subsidiaries in the financial and high-technology sectors.
5
Other services export-oriented
economies in this period are Hong Kong and Singapore, with ratios close to 30 and 40 per cent,
respectively.
Portugal has been recording surpluses in the services account in the last decades, which contrasts
with the systematic deficits in the goods account. In the average of the period 1985-2006, the Portu-
guese services account showed a surplus of 1.9 per cent of GDP (Chart 3). In terms of total exports
and imports of services as a percentage of GDP, both flows have increased their importance in the Por-
tuguese economy and tended to move in the same direction in most years. The main contribution to
the positive balance in Portuguese international transactions of services came from the travel sector,
with an average surplus of 2.8 per cent of GDP over the last two decades, though with some decline in
the first half of the nineties. On the contrary, there was a reduction of the negative contribution of net
exports of other services since the nineties. In fact, the evolution of the balance of other services was
significant, from a deficit of 2.1 per cent of GDP in 1990 to a surplus of 0.6 per cent of GDP in 2006.
The market share of Portugal in world exports of services increased over the last decades. This fact
contrasts with the disappointing evolution of Portuguese export market shares of goods over the last
20 years.
6
Over the 1985-2006 period, Portuguese exports of services show a cumulative increase of
market share of 32.8 per cent in nominal terms (Chart 4). This cumulative growth of Portuguese export
share in services resulted mostly from gains obtained until the mid-nineties, since there was a stabili-
zation of market shares over the last decade. The increase of Portuguese market share is higher than
the one observed in Spain, where the export share in services increased by 20.7 per cent in cumulative
Economic Bulletin | Banco de Portugal
Articles | Autumn 2009
219
Chart 2
EXPORTS OF SERVICES
Shares in GDP
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20
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Sources: CHELEM-BAL database and authors’ calculations.
Shares in total exports of goods and services
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r
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p
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D
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a
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K
G
r
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c
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P
e
r
c
e
n
t
1981-86 2001-06
Sources: CHELEM-BAL database and authors’ calculations.
(5) See Grimes (2006) for a detailed analysis of the internationalisation of services activities in Ireland.
(6) See Amador and Cabral (2008) for an analysis of the evolution of Portuguese market shares in world exports of goods.
Banco de Portugal | Economic Bulletin
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Chart 3
PORTUGUESE SERVICES ACCOUNT
Exports and imports of services
-8
-6
-4
-2
0
2
4
6
8
10
1985 1988 1991 1994 1997 2000 2003 2006
P
e
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c
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t
a
g
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G
D
P
Exports Imports Balance
Sources: CHELEM-BAL database and authors’ calculations.
Balances – travel versus other services
-3
-2
-1
0
1
2
3
4
1985 1988 1991 1994 1997 2000 2003 2006
P
e
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n
t
a
g
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f
G
D
P
Travel Other services Total
Sources: CHELEM-BAL database and authors’ calculations.
Chart 4
MARKET SHARE IN WORLD EXPORTS OF SERVICES
Cumulative results in nominal terms
40
60
80
100
120
140
160
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
I
n
d
e
x
1
9
8
5
=
1
0
0
Portugal Spain Austria Netherlands
Sources: CHELEM-BAL database and authors’ calculations.
40
50
60
70
80
90
100
110
120
130
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
I
n
d
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x
1
9
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5
=
1
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0
Germany France UK Italy
40
60
80
100
120
140
160
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
I
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1
9
8
5
=
1
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0
US Canada Japan Australia
40
100
160
220
280
340
400
460
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
I
n
d
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x
1
9
8
5
=
1
0
0
India China Hong Kong Korea Singapore
terms over the 1985-2006 period. Other European Union (EU) countries like Austria and the Nether-
lands recorded important cumulative losses in the same period. Regarding Greece and Ireland, the
data on exports of services is very volatile until the late nineties. Nevertheless, these countries are typi-
cal benchmarks for the Portuguese economy, so we computed the cumulative changes of market
share in the period 2000-2006. Ireland experienced a remarkably strong gain of market share in this
period (105.0 per cent), while the Greek economy recorded a modest cumulative increase (2.1 per
cent), lower than the one of Portugal in the same period (8.5 per cent).
The export market shares in services of large industrialized EUeconomies, like Germany and Italy, de-
clined by 18.0 and 28.4 per cent in cumulative terms between 1985 and 2006, respectively. In addition,
in France, there was a strong and sustained reduction of share in world exports of services since the
nineties, reaching a cumulative loss of more than 50 per cent in the period 1985-2006. On the contrary,
the UK recorded a cumulative increase in its market share in world services exports of 7.8 per cent in
this period. As for the group of extra-EU large industrialized economies, the export shares of the US
and Canada showed relatively similar paths over the 1985-2006 period, with cumulative losses of 17.5
and 13.1 per cent, respectively. The exports of services of Japan also lost market share over this pe-
riod (22.0 per cent), while Australia had a cumulative gain of 12.9 per cent from 1985 to 2006.
Emerging economies in East Asia gained substantial market shares in world exports of services over
the last two decades, similarly to what is observable in the goods markets. The nominal market share
of Hong Kong in world exports of services increased by 134.4 per cent in cumulative terms from 1985
to 2006, while Korea and Singapore had cumulative gains of share of more than 80 per cent in the
same period. Important players like China and India experienced impressive cumulative gains of 333.7
and 220.7 per cent, respectively. Nevertheless, the large scale of these economies and the low initial
shares in world services exports contributed to this path. Overall, the Portuguese economy performed
positively in terms of the evolution of services export shares. In the next section, we detail the analysis
of Portuguese exports of services by looking at the geographical and sectoral specialization,
comparing the latter with that of the world.
4. THE SPECIALIZATION PATTERN OF PORTUGUESE EXPORTS OF
SERVICES (1995-2006)
4.1. Geographical specialization
This subsection examines the main destination countries of Portuguese exports of services over the
1996-2006 period using data from the Banco de Portugal Balance of Payments database. Chart 5 in-
cludes a geographical breakdown of Portuguese exports of services, including the 15 trading partners
with a share above 1 per cent in the 2001-2006 period, which account together for more than 90 per
cent of total exports. Portuguese exports of services are mostly directed to other advanced European
countries, with the US, Brazil, Angola and Canada being the main exceptions. The set of top five desti-
nations of Portuguese exports of services coincides with that identified for the exports of goods, i.e.,
Economic Bulletin | Banco de Portugal
Articles | Autumn 2009
221
UK, Spain, France, Germany and the US (in descending order of importance). Nevertheless, the rank-
ing of the main five partners in Portuguese exports of services is different from the one in exports of
goods, where Spain and Germany are the leading destinations. The main destination of Portuguese
exports of services is the UK and its share increased strongly over this decade, from 15.5 per cent in
the average of the period 1996-2000 to 18.7 per cent in the period 2001-2006. Spain is the second
main destination and its share also increased over this period, from12.9 per cent in 1996-2000 to 14.7
per cent in the most recent period. However, the proportion of Spain in total Portuguese exports of ser-
vices is much lower than the corresponding share observed in Portuguese exports of goods. France
and Germany are also important destinations of Portuguese exports of services, with shares of 13.8
and 10.8 per cent in 2001-2006, respectively, but their shares declined over this decade. The US is the
fifth major destination, but its share in total Portuguese exports of services decreased from9.1 percent
in 1996-2000 to 5.7 per cent in the most recent period. The shares of Belgiumand Canada in total Por-
tuguese exports of services also decreased by more than 1 percentage point over this period. On the
contrary, Portuguese exports of services to Ireland and Italy grew clearly above average.
Recently, a fewempirical studies applied the traditional gravity formulation to the international trade of
services and found evidence that geographical proximity tends to play a somewhat stronger role in ser-
vices than in goods (see Kimura and Lee (2006)). In the Portuguese case, the verification of this result
is not straightforward. On the one hand, the closest country (Spain) shows a higher importance in the
trade of goods than in the trade of services. On the other hand, not very distant European countries like
France, Belgium, Switzerland and the Netherlands present somewhat higher shares in Portuguese
exports of services than in exports of goods.
Chart 6 further examines the main trading partners of Portuguese exports of services by displaying the
composition of exports by destination country in the average of the 2001-2006 period. The travel sec-
Banco de Portugal | Economic Bulletin
Autumn 2009 | Articles
222
Chart 5
MAIN TRADING PARTNERS IN PORTUGUESE
EXPORTS OF SERVICES
0
2
4
6
8
10
12
14
16
18
20
D
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S
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a
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x
p
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t
s
1996-2000 2001-2006
Sources: Banco de Portugal Balance of Payments database and authors ’ calculations.
Chart 6
COMPOSITION OF PORTUGUESE EXPORTS OF
SERVICES TO MAIN TRADING PARTNERS,
AVERAGE 2001-2006
0
10
20
30
40
50
60
70
80
90
100
A
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B
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r
Travel Transportation Other business services
Sources: Banco de Portugal Balance of Payments database and authors ’ calculations.
tor represents more than 50 per cent of total Portuguese exports of services to Germany, France,
Spain and the Netherlands, and more than 65 per cent in the case of the UK. Transportation is typically
the second largest type of services exported to these geographical destinations. This sector is espe-
cially important in Portuguese exports of services to Brazil, where it represents more than 40 per cent
of total. In the cases of Switzerlandand, in particular, Italy, other business services account for the larg-
est share of Portuguese exports of services to these countries.
4.2. Sectoral specialization and Balassa indices
This subsection is devoted to the sectoral specialization of Portuguese exports of services over the
1995-2006 period. It starts by examining the shares of each sector in total Portuguese exports of ser-
vices. In Portugal, three sectors have substantial shares in services exports (Table 1). Travel is the most
important sector, representing more than 50 per cent of Portuguese exports of services in the average of
the 1995-2006 period. However, there was a significant reduction of the share of this sector in total ex-
ports in the last years, in particular since 2001. In contrast, the share of the second most relevant sector in
Portuguese exports of services, the transportation sector, increased since 1999, accounting for around
20 per cent of total in the most recent period. Portuguese exports of transport services include mostly air
transport of passengers but exports of freight services increased strongly over this period, in particular in
Economic Bulletin | Banco de Portugal
Articles | Autumn 2009
223
Table 1
STRUCTURE OF PORTUGUESE EXPORTS OF SERVICES BY MAIN CATEGORIES
Shares as a percentage of total exports of services
Shares in Portuguese exports
1995-2000 2001-2006 1995-2006
Transportation (205) 17.4 19.9 19.0
of which: Air transport, Passenger (211) 9.5 8.4 8.8
Other transport, Freight (216) 2.3 4.6 3.7
Travel (236) 59.3 52.2 54.9
Communications services (245) 2.9 3.2 3.1
of which: Telecommunications (247) 2.7 2.9 2.8
Construction services (249) 2.5 2.6 2.6
Insurance services (253) 0.8 0.7 0.8
Financial services (260) 2.7 1.4 1.9
Computer and information services (262) 0.6 0.9 0.8
of which: Computer services (263) 0.6 0.9 0.8
Royalties and license fees (266) 0.3 0.3 0.3
Other business services (268) 11.0 16.2 14.2
of which: Merchanting (269) 4.8 7.4 6.4
Miscellaneous business services (273) 5.9 8.4 7.4
Personal, cultural and recreational services (287) 1.4 1.3 1.3
Government services (291) 1.1 1.2 1.2
Other services not elsewhere specified (nes) 0.0 0.0 0.0
Sources: CHELEM-BAL database and authors’ calculations.
Note: Extended Balance of Payments Services Classification (EBOPS) codes in parenthesis.
road transport freights. Portuguese exports of other business services also grewstrongly over the last ten
years, corresponding to more than 16 per cent of total exports of services in the 2001-2006 period. Portu-
guese exports of merchanting and other trade-related services increased strongly since 1999, reaching
7.4 per cent of total exports in the most recent period. Legal, accounting, management consulting and
public relations services and architectural, engineering and other technical services also represent a ris-
ing share of Portuguese exports of services. As regards other categories of services, there was a slight
increase of the shares of communications services and of construction services in Portuguese exports
over this period. The increase of the export proportion of communications services is mostly associated
with telecommunications. There was also an increase of the relative importance of computer and infor-
mation services, due to higher exports of computer services, though they still represent a small propor-
tion of exports in the most recent period. On the contrary, there was a significant reduction of the share of
exports of financial services, from 2.7 per cent in 1995-2000 to 1.4 per cent in 2001-2006.
The evolution of the Portuguese export structure of services must be placed in perspective against the
world average to evaluate the relative specialisation of Portugal and to identify the comparative advan-
tages revealed ex-post by international trade. For that purpose, the analysis of the specialization of Por-
tuguese exports of services is developed through the computation of the traditional Balassa (1965) index
of revealed comparative advantages, as it is usually done for international trade in goods.
7
The Balassa
index is defined as the ratio between the share of a given sector in total exports of the country under anal-
ysis and the share of that sector in total world exports. If the indicator reaches a value higher than 1, then
the country is classified as being relatively more specialized in that sector, that is, as having a revealed
comparative advantage in the sector.
Portugal reveals a clear and sustained comparative advantage in the travel sector over the last decade
(Table 2). The sector of communications services has also high specialization coefficients over the sam-
ple period, although smaller than those observed in the travel sector. Portuguese exports of services are
also relatively specialized in personal, cultural and recreational services, but some reduction of the
Balassa indices is observed over the period. On the contrary, there was an increase of the Portuguese
specialization in construction services, which resulted in Balassa indices above 1 since 2001. All other
services sectors have indices lower than 1 in the average of the periods analysed.
The analysis of the relative specialization of Portuguese exports of services can be enhanced by taking a
set of countries as a benchmark, thereby investigating their relative behaviours. Table 3 presents the
Balassa indices of the main sectors in Portugal, in other EUcountries and in several non-European coun-
tries, including some developing Asian countries, in the period 2001-2006. Starting with the comparison
between Portugal and the other initial EU Cohesion Fund beneficiaries (Spain, Greece and Ireland),
there are contrasting situations. Comparing Portugal and Spain, some similarities are evident, namely
the strong specialization of both countries in the travel sector. However, in the cases of Greece and, es-
pecially, of Ireland the differences in terms of relative specialization are remarkable. In Ireland, the shares
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224
(7) However, in this case the results of the Balassa index reflect only part of Portuguese international trade in services. As mentioned previously, our definition
of international trade in services is limited to the international transactions included in the balance of payments services account, thus not taking into
consideration other modes of supplying foreign markets.
of computer and information services and of insurance services in total exports of services are much
higher than the world average, resulting in extremely high specialization coefficients. Irish exports are
also relatively specialized in financial services, but to a much lesser extent than in the two previous cate-
gories. As regards Greece, its exports of services are mainly concentrated in two categories: transporta-
tion and travel. In particular, the proportion of the sector of transportation services in Greek exports is
more than twice the world average in the period 2001-2006.
In what concerns other countries, the cases in which we detect the higher indices of revealed compara-
tive advantage in the 2001-2006 period include several situations that have been separately documented
in the literature. For example, the US and Japan have strong revealed comparative advantages in royal-
ties and licence fees. In addition, Japan and Germany present high Balassa indices in construction ser-
vices. In Canada, the shares of personal, cultural and recreational services and of insurance services in
total exports are much higher than the world average, resulting in strong specialization coefficients. The
UK, a leading world financial market, shows a very high revealed comparative advantage in financial ser-
vices. Korea and, to a lesser extent, Singapore stand out for their specialization in the transportation sec-
tor. Singapore is also relatively specialized in other business services and in insurance services, while the
highest specialization coefficients of Hong Kong are in other business services, financial services and
transportation services. Finally, India is identified by its widely debated and extremely strong revealed
comparative advantage in computer and information services, showing the highest Balassa index of Ta-
ble 3. In contrast, China’s exports of services seem more broad-based, with Balassa indices above 1 in
travel, construction services and other business services.
8
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225
Table 2
THE SPECIALIZATION OF PORTUGUESE AND WORLD EXPORTS OF SERVICES BY MAIN CATEGORIES
Shares as a percentage of total exports of services and Balassa indices
Shares in Portuguese
exports
Shares in world
exports
Balassa indices
1995-
2000
2001-
2006
1995-
2006
1995-
2000
2001-
2006
1995-
2006
1995-
2000
2001-
2006
1995-
2006
Transportation (205) 17.4 19.9 19.0 22.9 21.4 22.0 0.8 0.9 0.9
Travel (236) 59.3 52.2 54.9 31.4 27.5 29.0 1.9 1.9 1.9
Communications services (245) 2.9 3.2 3.1 2.0 2.2 2.1 1.4 1.4 1.4
Construction services (249) 2.5 2.6 2.6 2.6 2.0 2.2 1.0 1.3 1.2
Insurance services (253) 0.8 0.7 0.8 1.8 2.3 2.1 0.5 0.3 0.4
Financial services (260) 2.7 1.4 1.9 4.5 6.2 5.5 0.6 0.2 0.3
Computer and information services (262) 0.6 0.9 0.8 1.8 4.1 3.2 0.3 0.2 0.3
Royalties and license fees (266) 0.3 0.3 0.3 4.7 5.0 4.9 0.1 0.1 0.1
Other business services (268) 11.0 16.2 14.2 22.3 23.6 23.1 0.5 0.7 0.6
Personal, cultural and recreational services (287) 1.4 1.3 1.3 1.1 1.2 1.2 1.3 1.1 1.1
Government services (291) 1.1 1.2 1.2 3.3 2.6 2.9 0.3 0.5 0.4
Other services not elsewhere specified (nes) 0.0 0.0 0.0 1.5 1.8 1.7 0.0 0.0 0.0
Sources: CHELEM-BAL database and authors’ calculations.
Notes: Extended Balance of Payments Services Classification (EBOPS) codes in parenthesis. All Balassa indices higher than 1 are highlighted.
(8) See Bussière and Mehl (2008) for a detailed analysis of the integration of India and China in world markets.
2
2
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Table 3
THE RELATIVE SPECIALIZATION OF EXPORTS OF SERVICES – BALASSA INDICES
Average 2001-2006
Portugal Spain Ireland Greece Italy Germany France UK Netherlands
Memo item:
Share in total world exports of services 0.6 3.8 2.2 1.3 3.7 6.3 4.9 8.4 3.2
Transportation (205) 0.9 0.8 0.2 2.2 0.7 1.1 1.1 0.7 1.3
Travel (236) 1.9 1.9 0.3 1.5 1.5 0.7 1.4 0.5 0.5
Communications services (245) 1.4 0.7 0.7 0.5 1.1 1.0 1.2 1.3 1.9
Construction services (249) 1.3 0.8 0.0 0.4 1.3 2.6 1.6 0.2 1.9
Insurance services (253) 0.3 0.3 7.1 0.3 0.8 1.4 0.5 1.7 0.2
Financial services (260) 0.2 0.5 1.6 0.1 0.2 0.6 0.2 3.2 0.2
Computer and information services (262) 0.2 0.9 8.2 0.1 0.2 1.3 0.3 1.3 1.0
Royalties and license fees (266) 0.1 0.1 0.2 0.0 0.2 0.8 0.9 1.3 0.9
Other business services (268) 0.7 0.8 1.0 0.2 1.3 1.2 1.0 1.2 1.5
Personal, cultural and recreational services (287) 1.1 0.9 0.5 1.0 0.8 0.5 1.5 1.5 0.8
Government services (291) 0.5 0.3 0.3 0.1 0.5 1.9 0.3 0.7 1.0
Other services not elsewhere specified (nes) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Portugal US Canada Japan India China Hong Kong Korea Singapore
Memo item:
Share in total world exports of services 0.6 16.1 2.3 4.3 1.8 2.8 2.6 1.8 2.0
Transportation (205) 0.9 0.8 0.8 1.6 0.5 0.9 1.4 2.4 1.8
Travel (236) 1.9 1.0 0.9 0.3 0.5 1.5 0.6 0.6 0.4
Communications services (245) 1.4 0.7 1.7 0.3 1.6 0.4 0.6 0.5 0.5
Construction services (249) 1.3 0.5 0.2 3.6 0.6 1.5 0.4 0.1 0.6
Insurance services (253) 0.3 0.8 2.8 0.3 0.7 0.3 0.3 0.1 1.2
Financial services (260) 0.2 1.2 0.4 0.8 0.4 0.0 1.6 0.5 0.9
Computer and information services (262) 0.2 0.5 1.6 0.3 10.2 0.6 0.1 0.0 0.3
Royalties and license fees (266) 0.1 3.0 1.2 3.2 0.0 0.1 0.1 0.8 0.2
Other business services (268) 0.7 0.8 1.1 1.0 1.0 1.3 1.7 0.9 1.6
Personal, cultural and recreational services (287) 1.1 1.7 2.9 0.1 0.1 0.1 0.3 0.4 0.3
Government services (291) 0.5 2.1 0.9 0.7 0.3 0.3 0.0 1.2 0.1
Other services not elsewhere specified (nes) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Sources: CHELEM-BAL database and authors’ calculations.
Notes: Extended Balance of Payments Services Classification (EBOPS) codes in parenthesis. All Balassa indices higher than 1 are highlighted.
5. CONCLUSIONS
Over the last decades, there has been a general trend of sectoral re-allocation towards the services
sector in most developed countries. The share of the services sector in the Portuguese economy in-
creased over the last two decades, reaching 70.4 percent of total gross value added and 60.3 per cent
of total employment in 2003 (55.5 per cent and 42.6 per cent in 1980, respectively). In addition, Portu-
gal has accompanied the trend of growing importance of services exports, which presently represent
more than 28 per cent of total Portuguese exports.
This paper characterizes Portuguese international trade in services over the last two decades, defined
as the cross-border flows included in the balance of payments services account. A comparative per-
spective of the main features of Portuguese trade in services is provided, as most of the analysis is
carried out considering also other countries as benchmarks.
Travel is the most important sector in Portuguese trade in services and it has been a major factor be-
hind the maintenance of an average surplus in the services account close to 2 per cent of GDP in the
last two decades. Nevertheless, the contribution of net exports of other services has progressively
moved from clearly negative in 1990 to slightly positive in 2006.
The market share of Portuguese exports of services behaved favourably over the last decades, in con-
trast with the disappointing evolution of export shares of goods. Over the last two decades, the nominal
rate of change of Portuguese exports of services was higher than that of world services exports, lead-
ing to a cumulative increase of market share of 32.8 per cent from 1985 to 2006. This increase is
higher than those observed in several European countries, but much smaller than those registered in
some developing Asian economies.
Portuguese exports of services are mostly directed to other advanced European countries, with the
main five destinations matching those of exports of goods, though with a different ranking. The main
destination of Portuguese exports of services is the UK and its share in total exports increased strongly
to 18.7 per cent in the 2001-2006 period. The travel sector constitutes the bulk of Portuguese exports
of services to the UK, representing more than 65 per cent of total in this period. Spain is the second
main destination of Portuguese exports of services, with a share of 14.7 per cent in the most recent pe-
riod, which is much lower than the corresponding share observed in Portuguese exports of goods.
France and Germany are also important destinations of Portuguese exports of services, accounting
individually for more than 10 per cent of total.
The travel sector is the most important sector in Portuguese exports of services, representing more
than 50 per cent of total. However, the share of this sector declined over the last years, in particular
since 2001. The second most relevant sector in Portuguese exports of services is the transportation
sector, with a share of around 20 per cent in the 2001-2006 period, while exports of other business ser-
vices account for more than 16 per cent of total exports in this period. In contrast with the evolution ob-
served in the travel sector, there was a significant increase in the shares of these two sectors in total
Economic Bulletin | Banco de Portugal
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227
Portuguese exports of services over the last years.
Portugal has a clear and sustained comparative advantage in travel services over the last decade, as
measured by the Balassa index. The sector of communications services has also high Balassa indices
over this period, although smaller than those observed in the travel sector. In the period 2001-2006,
Portuguese exports of services are also relatively specialized in construction services and in personal,
cultural and recreational services. Comparing Portugal and Spain, some similarities are evident in
terms of relative export structures, namely the strong specialization of both countries in the travel sec-
tor. In the cases of Greece and, especially, of Ireland the differences are substantial. Ireland has ex-
tremely high specialization coefficients in computer and information services and in insurance
services, while the share of transportation services in Greek exports is more than twice the world aver-
age. In addition, we identify several country-specific features that have been separately documented
in the literature. The UK stands out for its specialization in financial services and Germany has high
Balassa indices in construction services. The US and Japan have strong revealed comparative advan-
tages in royalties and licence fees, while Korea has a strong specialization in the transportation sector.
In India, the shares of computer and information services in total exports are remarkably higher than
the world average, resulting in the highest Balassa index of all countries and sectors considered.
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