The Bank of Korea Says "The Trend Is Service Trade, South Korea Must Also Enhance Service Competitiveness"

Bank of Korea Publishes 'Overseas Economic Focus' Report on the 19th

Service Trade Has High Added Value

[Image source=Yonhap News]

[Asia Economy Reporter Shim Nayoung] As the significance of service trade in the global economy gradually increases, there have been calls for South Korea to enhance the competitiveness of its service sector.

According to the 'Overseas Economic Focus' report released by the Bank of Korea on the 19th, even during the first half of last year when global trade conditions became more uncertain and merchandise trade turned to a decline (-2.7% in nominal trade value), service trade maintained an upward trend (1.0%). Service trade accounts for about 20% of global trade, but based on value-added trade, it represents approximately 50%, indicating a significantly higher added value compared to merchandise trade.

Global service trade continues to grow at a high rate, and its growth trend is more stable compared to merchandise trade. Before the global financial crisis, service trade showed a growth rate similar to merchandise trade, and even after the crisis, it has maintained a relatively robust growth trajectory compared to merchandise trade.

During periods when global merchandise trade sharply declined, such as the 2009 global financial crisis and the 2012 European debt crisis, the slowdown in service trade was limited, significantly reducing volatility. Globally, service trade was led by advanced countries, with sectors such as travel, other business services, and transportation services taking the lead.

Global service trade is growing under the leadership of advanced countries, focusing on high value-added sectors, but trade costs remain higher than those of merchandise trade. Due to advances in IT technology, the spread of internet access, and the knowledge intensification of economies, high value-added service trades such as professional and management consulting, research·development, telecommunications·computer·information, and intellectual property usage have rapidly expanded. In particular, the share of research and development and professional·management consulting services has steadily increased, while the share of transportation services has decreased due to sluggish freight transport.

While advanced countries lead global service trade, advanced countries have focused on export-oriented trade, and emerging countries on import-oriented trade for a considerable period. Advanced countries mainly specialize in exports in high value-added sectors. The United States has a high specialization in intellectual property royalties, the United Kingdom in finance·insurance, and France in travel sectors.

High value-added service industries such as legal and accounting services have relatively higher trade costs compared to merchandise trade, which has acted as a constraint on the growth of service trade. As the role of multinational corporations in the global economy has increased, trade through overseas affiliates has accounted for the largest share, centered on distribution and finance sectors in advanced countries.

On the other hand, in emerging countries, cross-border supply and overseas consumption have higher trade shares in that order.

The report stated, "Services, which have been regarded as non-tradable goods, are expected to play an increasingly important role in global trade due to the service-ization and knowledge intensification of the global economy, as well as technological advances related to the Fourth Industrial Revolution," adding, "Digital technology development alleviates the non-face-to-face nature, a constraint of service trade, thereby activating trade, and as manufacturing becomes more service-oriented, the added value of service trade is also expected to expand."

It continued, "Considering characteristics such as the high growth rate, stability, and high added value of service trade, it is desirable to foster the service industry as a new growth engine in the future while utilizing it as a factor for economic stabilization," emphasizing, "South Korea also needs to respond to structural changes in the trade environment and advances in the Fourth Industrial Revolution, and to enhance export competitiveness in high value-added service sectors and improve trade structure through continuous investment in core source technologies and strengthening professional capabilities to expand new growth potential."

This content was produced with the assistance of AI translation services.