Services in the Domestic Economy and in World Transactions

A new interest in the role of services in world transactions has been generated by the current efforts of the U. S. Government to reduce barriers to international trade in services.The paper distinguishes four different classifications of economic activities between services and corrmodities. Service industries -- those producing non-storable outputs -- have been growing in nost domestic economies relative to commodity-producing industries, though about half the growth in their share in GDP is attributable to relative price increases.The U.S. policy effort focuses on a somewhat different set of services which are referred to as "private nonfactor services". Exports of such services have not expanded relative to comrrodity exports. However, their sales by U.S. affiliates abroad are much larger than exports from the U.S.and have been growing more rapidly than affiliates' commodity sales. It will not be easy to obtain the consent of foreign countries toa general easingof restrictions on direct foreign investment in service sectors.Also, it may beasked why,if growth is to be the criterion of special negotiating effort, the commodity-service dichotomy is relevant. Why not search for fast qrowing sectors amonq cammodities as well? However, a successful effort to reduce some foreign barriers and the compensatory reductions in U.S. barriers that this would entail might provide a modest counterweight on the side of liberalization in a world in which restrictions are growing.

U.S.-Owned Affiliates and Host-Country Exports

U.S.-owned manufacturing affiliates in foreign countries tended to become more export-oriented between 1966 and 1977. The shift toward exporting characterized affiliates in most industries and most countries.The bulk of U.S.-owned production abroad continues to be for local sale in most industries and areas. Exporting to the U.S. remains a small part of affiliate activities in almost all cases. The most export-oriented were subsidiaries in machinery industries in Southeast Asia which were also the only ones outside Canada that sold a substantial part of their production in the U.S. In most industries and most countries U.S.-owned companies led the rise in exports and increased their shares in the exports of their host countries. This role of U.S. subsidiaries was particularly notable in Southeast Asia,and in those countries was concentrated in the machinery industry. The increasing share of U.S. affiliates in host-country exports was quite a general phenomenon, however, and high rates of affiliate export growth were associated with rapid growth of host country GDP and exports.

Prices and Terms of Trade for Developed-Country Exports of Manufactured Goods

The purpose of this paper is to contribute some new measurements to t112 discussion of trends in the terms of trade between manufactured goods exports of developed countries and primary product exports of developing countries. The new measures are manufactured goods price indexes that are derived from price data rather than from unit value data and include some corrections for quality change. Our calculations indicate that the prices of manufactured goods exported by developed countries to developing countries have risen over twenty years or so by 75 per cent, as compared to the 140 per cent shown by the generally used UN unit value indexes. The decline in terms of trade for these goods relative to primary products has been almost 50 per cent over this period. Over tile last hundred years, fluctuations in the terms of trade of manufactured goods relative to primary products !lave been very wide, as far as we can tell from the inadequate measures we have. Impressions about trends have been highly dependent on choices of beginning and end years. There is very little evidence for a long-run trend in either direction.

The Effect of Multinational Firms' Operations on Their Domestic Employment

Given the level of its production in the U.S., a firm that produces more abroad tends to have fewer employees in the U.S. and to pay slightly higher salaries and wages to them. The most likely explanation seems to be that the larger a firm's foreign production, the greater its ability to allocate the more labor-intensive and less skill-intensive portions of its activity to locations outside the United States. This relationship is stronger among manufacturing firms than among service industry firms, probably because services are less tradable than manufactured goods or components, and service industries may therefore be less able to break up the production process to take advantage of differences in factor prices.