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GTAP Resource #1720

"ICT, trade in services and small countries"
by Nordas, Hildegunn

Consumer services usually need to be provided locally, but some of the content can be digitised and transmitted over long distances. In entertainment and in financial services for example, cross-border trade has been long established. The question analysed in this paper is the possibility and impact of a similar development in social services such as health and education. How will for example access to information on the Internet and interactive learning programs affect a) the quality of education; b) the role of the local teacher/lecturer; c) the demand for her services; d) her relative income?

These questions are closely related and are therefore analysed in a general equilibrium framework where consumer services are provided locally but ICT allows the local provider to source intermediate inputs from outside suppliers. Quality of services is in this paper defined as the variety of content. A general equilibrium model of two asymmetric countries is developed and numerical simulations presented.

It is found that trade in intermediate service inputs enhances the quality and lowers the price of consumer services in small economies, reducing the gap in access to services between large and small countries. In addition, income distribution tends to become more equal both within small economies and between large and small economies. Once adequate infrastructure is in place, therefore, there appears to be little reason for small economies to worry about marginalisation due to ICT. However, the local teachers, lecturers or practitioners will increasingly convey information produced outside the country and work as intermediaries between local pupils/students/patients and external specialists.

The results also suggest that when a new technology, e.g. the Internet opens the opportunity to engage in services trade, the initial response by firms determines what trade regime will emerge. If all firms respond by getting connected and enter export markets simultaneously, this trade regime can be sustained, but the average size of firms becomes larger and consequently there is a shake-out of firms at a cost to consumers in the large country where the variety of content is reduced. If on the other hand firms take a more cautious wait-and-see approach, a limited number of firms will enter export markets initially, and many firms will confine themselves to servicing the local market even as the technology improves. An event such as the Internet-hype can in other words have a lasting impact on the structure of the services market.

Resource Details (Export Citation) GTAP Keywords
Category: 2005 Conference Paper
Status: Published
By/In: Presented at the 8th Annual Conference on Global Economic Analysis, Lübeck, Germany
Date: 2005
Created: (4/29/2005)
Updated: (4/29/2005)
Visits: 1,390
No keywords have been specified.

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