Services Development and Comparative Advantage in Manufacturing

III.4 Measures of domestic services development (D)

Our main services development measure (D) is defined as the ratio of services value-added to GDP. Figure 1 shows a clear positive relationship between income level and the shares of financial and business services in GDP. It seems reasonable to use their shares in GDP to measure the level of development of these sectors.  

Alternatively, we use the average value added per worker to measure domestic services development. It is calculated as total value added divided by total number of employees for financial or business services based on the data from the WIOD and its Socio Economic Accounts. It is commonly used as a measure for labor productivity in services sectors, which should be closely linked to the levels of services development. 

We also use other measures of services development to check the robustness of our results when data are available. Following the tradition in the literature, as in Rajan and Zingales, we adopt two alternative measures for financial services development using the data from the World Bank Global Financial Development Database (GFDD). GFDD is an extensive data set of financial system characteristics for 203 economies from 1960 to 2010. The first measure is the bank private credit to GDP ratio, which is defined as the share of financial resources provided to the private sector by domestic banks in a country's GDP, originally from the International Financial Statistics of the IMF. The second measure is the share of bank private credit and stock market capitalization in GDP. Stock market capitalization refers to the total value of all listed shares in a stock market based on Standard & Poor's Global Stock Markets Factbook and supplemental S&P data.