Sources of Comparative Advantage in Services: Institution vs. Social Capital

49 Pages Posted: 20 Jun 2019

See all articles by Nakgyoon Choi

Nakgyoon Choi

Korea Institute for International Economic Policy

Soonchan Park

Kongju National University

Date Written: December 14, 2018

Abstract

Previous studies that have identified the impacts of institutions or cultural traits on comparative advantage focused on goods trade, but not services trade. In contrast to the rapid increase in trade in services, empirical examination on sources of comparative advantage in services trade remains limited. This paper attempts to fill this gap by investigating empirically the impacts of institution as well as social capital on comparative advantage in services trade. Services are exposed to relatively more pre-choice risks than goods, because it is difficult to obtain information on the quality of services before the consumer decides to purchase. In addition, trade in services involved in global value chains possibly takes on the risks of contract breach by other firms along the same value chains. As a result, the transaction risks for trade in services are higher than for trade in goods. Using the World Input Output Database, we estimate the importance of social capital for comparative ad-vantage in services. We find that countries with more social capital tend to specialize in the production of contract-intensive services. We also find that social capital rather than institution matters for comparative advantage in services.

Keywords: Comparative Advantage, Services, Institution, Social Capital

Suggested Citation

Choi, Nakgyoon and Park, Soonchan, Sources of Comparative Advantage in Services: Institution vs. Social Capital (December 14, 2018). KIEP Research Paper. Working paper 18-06. Available at SSRN: https://ssrn.com/abstract=3407224 or http://dx.doi.org/10.2139/ssrn.3407224

Nakgyoon Choi (Contact Author)

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Soonchan Park

Kongju National University ( email )

527 Yesan
340-800 Choongnam
Korea

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