The UK in a Global World - Vox

Comparative Advantage and Service Trade 145The key policy findings/recommendations from our analysis can be summarisedas follows:1. The level of service trade, both at the aggregate and product level, isdriven by a number of fundamentals in which the UK is well positioned.In particular, due to its good legal and financial institutions, goodaccessibility to large and rich markets, and high level of human capitalstock, the UK has a strong competitive position in the service exportsmarket. The importance of these fundamentals does not seem to bedramatically changing over time which is rather good news in terms ofthe future UK position.2. There is scope for improving UK competitiveness in service exportsand our study provides some figures about potential gains in terms ofservice exports increase. Nevertheless, the scope for improvement isrelatively limited due to the high rank of the UK in all fundamentals.More generally, we believe that a more comprehensive study is neededto take into account the costs of improving UK fundamentals as well asthe implications for other parts of the economy.3. In terms of service growth, both at the aggregate and product level,there are a number of patterns in the data which deserve attention.On the positive side, exports growth has been larger for the big playersgroup, in which the UK is well placed. Furthermore, service exportsgrowth and market access are positively related. The links of the UKwith the EU, the US, and other large and rich markets is thus a valuableasset to be exploited even more.4. On the negative side, service exports growth has been negatively relatedto the quality of institutions. This suggests the comparative advantagein service trade of the UK stemming from its good institutions has beeneroding. Furthermore, exports growth has been larger in countries thathave experienced a higher increase in their human capital. The declinein tertiary education enrolment in the UK is in stark contrast with theexceptional rise of some developing countries such as Brazil and Chinaand the steady rise of most developed countries including Korea, Italy,Spain, the US, and Japan, thus work against the direction in whichservice exports are expanding.ReferencesAcemoglu, D., S. Johnson, and J.A. Robinson (2002) Reversal of Fortune:Geography and Institutions in the Making of the Modern World IncomeDistribution, Quarterly Journal of Economics 117, 1231-1294.Anderson, J.E. and E. van Wincoop (2003) Gravity with gravitas: A solution to theborder puzzle. American Economic Review 93, 170-192.