Theory of International Trade in Services Chapter Three Chapter Three

Learning objective: the relative theories of service; service industry; service trade, which helps analyze service and build a foundation on how to increase the service productive rate and promote the development of service industry and service trade.

1.Relative Theory of Service 服务相关理论 1.1 Theory of service value 服务价值理论

1.1.1 proposal of service value Create value 30% inputs 70% inputs Non-material production labor Material production labor

(1)The “non-material production labor” % inputs CREAT VALUE the“ material production labor” % inputs

(2) People buy services with money. According to the equivalent exchange principle, services have values. money services money service s Equal value

1.1.2 Explaination of service value

Services create value Services are valuable Magnitude of value and value of service products Value in use and exchange value of service products Only material productive labors — create value Industry and agriculture Without service labors Create service value Run counter to the theory of labor value Non-material labors (service products) have values Run counter to Exchange regulation of value 30% of labors Something invaluable --- something valuable 70% of labors do not create value Material productive labors – 30% inputs

Social products: (1)service products (2) physical products Education; scientific research; Technology; Culture; Medicine; Transportation; Tourism; Business; Telecom. Magazines; CDs; Industrial & agricultural products.

1.1.3 Constitution of service value Value-in-use of services (1) to satisfy the spiritual or physical demands of human beings. (2) the main part of social wealth. (3) the material bearer to exchange value in the market economy.

Service value (1) The labors consumed in the service products are condensed on the non- physical use of value so as to form the value entity. (2) The conflicts between the private and social labors push the labors producing the service products to express the value in the social forms. (3) Service products can be exchanged with the material products by the quantity of labors, instead of the quantity of value use.

Magnitude of service value (1)Constant capital （不变资本） — the value of fuels, materials or auxiliary materials( 辅助材料 ), and service tools and depreciation cost.

(2)Variable capital （可变资本） — value created by the necessary work made by the service labors. (3)Marketable surplus value （剩余产品价值 ） — the basis of service industry and the whole social development.

1.2 Utility value of service ( 服务的效用价值 )

Constitution of utility value: ※ Value---value of factors including knowledge ※ Function utility--- expressed in different economic system and social environment

2. Relative Theory in Service Industry 服务业相关理论

2.1 Petty-Clark Theorem （配第 — 克拉克定理）

With the development of national economy and the increase of national income per capita, agricultural labor forces are reduced rapidly. The proportion of manufacture labor forces is in synchronous increase with economy but normally it is stable after reaching 40%, yet that of service is constantly increased.

2.2 Path theory on service development 服务业发展路径学说 “ Internal ” evolution to “ external ” one “ 内在化 ” 向 “ 外在化 ” 的演进

Service Market Internal external Transfer In the internal & No-market form Market: Housekeeping, accountant, Marketing, consultant, etc. buy

2.2.3 Changes in supply model of family services 家庭服务提供模型的变化

The more and high wages of a family The less housework in the family work The more and more services to buy for the family more less more wages housework services

3. Relative theory on trade in services 服务贸易相关理论

3.1 Research on trade in services by traditional trade theory 传统贸易理论对服务贸易的研究 ※ Non-application theory ( 不适用 论 ) ※ Application theory ( 适用论 ) ※ Improvement theory ( 改进论 )

3.2 Research on trade in services by modern trade theory 现代贸易理论对服务贸易的研究

【 modern trade theory 】 : ① a theory of new trade (comparative advantage) & ② a theory of national competitive advantage

Similarities: the same theoretic premise and goal

Differences: ※ a theory of new trade : emphasizes the active government intervention. ※ a theory of national competitive advantage: regards the government as a supplementary element.

3.3 From comparative advantages to competitive advantages of trade in services Theory on Competitive Advantages : competitive in same department fields in different departments Competitive Equilibria Theory ( 均衡竞争理论 ) Competitive form Game Competitive Theory ( 博弈竞争理论 ) （ 19 th century ） Innovation Competitive Theory ( 创新竞争理论 )

Competitive Advantage Theory Four elements : ※ productive elements ※ demand conditions ※ relative and supporting industries ※ enterprises strategy and competition in same trade ＊ opportunities ＊ government

Porter ’ s “ Competitive Advantage Theory ” : Opportunities government competition in same trade Relative and supporting industries Productive factors Demand conditions 强 高 多 稳

Comparative & Competitive Advantage “ Para ” : economics concept “ Peti ” : management concept “ Para ” : price competition “ Peti ” : non-price competition “ Para ” : quantity of supply “ Peti ” : quality of elements “ Para ” : static analysis “ Peti ” : dynamic analysis

Relations ： ▲ The derived comparative advantage is one kind of price competitive advantage. ▲ Both of them are restrained by scarcity of resources. ▲ Both of them care about same element: knowledge and technique innovation, trade effect on scale economy. ▲ Both of them happen simultaneously when broad economy occurs. ▲ Both of them can be transformed and depended on each other. ▲ Both of them reflect the international comparison of productivity. But “ Para ” refers the comparison of productivity among the different fields of each country, whereas “ Peti ” refers that among the same fields of each country.

Conclusion of “ Para ” & “ Peti ” Comparative advantage must be very important in trade in services but only the competitive advantage which transformed by comparative one can form the real competition in the trade.

“ Para ” / “ Peti ” and Competition of trade in services Comparative advantage Competitive advantage Competitive theory Second level First level Competition of Trade in services

3.4 Empirical analysis of trade in services Six elements: (1)Element of service technology (high technology) (2)Service resources element (3)Service management element (4)Service market element (5)Service capital (investment) element (6) Service products element

Evaluation system of competition in international trade in services based on im-export Element conditions 要素条件 enterprise strategies, structures and competitions in the same lines 企业战略、结构和同行业竞争 Supportive and relative industries 支持性产业及相关产业 Domestic conditions 国内条件 oppor - tunity Government 政 府 Service product factor 服务产品因素 Service capital factor 服务资本因素 Service administrative element 服务管理要素 Service market factor 服务市场因素 Service resources element 服务资源要素 Service technology element 服务技术要素

Inner connection between service market and national competitive advantage Index of Competition In International Service Trade Based on Import And Export 以进出口 为基础的 国际服务 贸易竞争 力指标 Market Occupancy 市场占有率 Net export (Trade surplus) 净出口 Export percentage 出口比重 Labor Productivity 劳动生产率 International Market Occupancy 国际市场 占有率 Degree of Openness In trade in services 服务贸易对外开 放度 Constant Market Model 固定市场 份额模型 指标 General Volume Index of Trade in services 服务贸易总量指 标 The index of Trade Competition 贸易竞争指数 Index of Trade inside Industries 产业内贸易指 数 Revealed Comparative Advantage Index 显 性比较优势指标 Revealed Competitive Advantage Index; 显 性竞争优势指标 Index of Relative Export Performance 出口绩效相对指数 Profit margin 利润率 Value Adding Rate 价值增值 率 Labor Productivity 劳动生产率 Export effect Of service Employment. 服务业就业的出口效应 指数

3.5 Analysis of liberalization in services Routes: (1) Actively carry forward multilateral negotiation with the role of WTO. (2) Firstly put liberalization in services into practice in regional economic groups. (3) Strengthen coordination of the domestic policy, especially the competitive policy between each of the countries because barriers of trade in services mostly involve the departments apart from trade. (4) In order to increase the positivity of developing countries to participate into the liberalization in services, developed countries should push sufficient liberalization in goods, in which developing countries carry comparative advantages.

3.6 Analytical framework of trade in services Effects of macroscopic variable on providers of international trade in services; Effects of macroscopic variable on demands of international trade in services.

Providers: Up influence Up influence Down influence Products Up influence Up influence

Demanders: Up influence Up influence Down influence Up influence

Quiz 1 1. How do you understand service value after learning this chapter? What does the value quantity of service products consist of? 2. What is the utility of service value ？ Which are the two parts to consist of utility of service value? 3. What is Petty-Clark Theorem? Explain simply the reason to form such a phenomenon.

Quiz 2 4. Analyze the main forces in the evolution of freedom from “ Internalization ” to “ externality ” of consumption services and production services. 5. How does traditional theory of trade explain trade in services? 7. How do we analyze trade in services by the theory of competitive advantage? 8. How can service comparative advantage be transferred into competitive advantage?