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The Importance of International Trade in Services for Belgium’s Balance

While the primary examples of non-traded goods are often not goods at all, but services, there has been a growing importance of international trade in services. The importance of services in an economy positively correlates with the development of that economy, also called tertiarisation of the economy. The share of services in activity and employment has reached around 70% in many industrialized countries and in Belgium this share is higher than its neighboring countries and the euro area average [Table 1].

Despite in gross amount of imports and exports still being of minor importance relative to trade in goods, the service balance has become the main driver of the current balance in Belgium. The service balance is taken as the difference between exports and imports in services. It can be seen in [Figure 1] that Belgium’s balance of trade in services has been positive and rising since 1995. This because of a faster rise in service exports than imports. Meanwhile the balance of goods has declined between 2002 and 2008 leading to net import of goods in 2008 and 2009.

While the share of service exports only accounts for about 15% of total exports, its share of GDP is among the highest in the euro area. Euro area countries with a higher service balance are Austria and Portugal, which are specialized in travel and Luxembourg, which is specialized in financial services.  

The tradable services can be broken up in 5 categories: government services, transportation, travel, insurance and financial services; and miscellaneous business services. Belgium has in particular a competitive advantage in government services, while being under-specialized in travel services. This specialization can be explained by Belgium’s central location at the heart of Europe and its role as seat of many major European Institutions. However, it can be seen in [Figure 2] that transport and business services account for the highest share of income of services at the positive side of the balance of services

Looking back at [figure 1] it can be seen that since 2002 the growth of the balance of services has partly offset the decline in balance of goods, which on its turn has declined strongly since 2002, turned negative in 2008 and floated around zero since. As such it can be reasoned that the trade in services, although being of minor importance in share has had a very important role in preventing the country of falling into a recession.

For people who want to read more about this, I strongly recommend the following article which also served as guidance in writing this comment:

Duprez, C. 2011. International trade in services A growing contribution to Belgium’s current balance. National Bank of Belgium

[http://www.nbb.be/doc/ts/publications/EconomicReview/2011/ecorevIII2011_H4.pdf]

 

Table 1

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Figure 1

 

 

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Figure 2

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Tom Willaert

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Author: studentnovasbe

Master student in Nova Sbe

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