DESCRIPTIVE ANALYSIS OF THE DATABASE

Sectors are summarised according to UK cost shares in Table 6.3. The table lists factor costs shares for aggregate capital and labour, and provides the proportional contribution to each composite factor share by labour and asset type.¹ Composite shares indicate that unskilled manufacturing and skilled services are relatively intensive in aggregate labour. Analysis by labour type suggests that as a whole services are more skill-intensive than manufacturing. With regard to capital assets, equipment is employed relatively intensively in unskilled manufacturing and skilled services.

Table 6.3

UK factor cost shares , 1995, percent

Sector Composite factor Labour^a Capital^b

Labour Capital Skilled Unskilled Buildings Equip.

Unskilled manuf. 69.5 30.5 28.5 71.5 25.2 74.8

Skilled manuf. 58.8 41.2 43.4 56.6 38.4 61.6

Unskilled serves. 53.1 46.9 32.4 67.6 53.8 46.2

Skilled services 78.2 21.8 69.1 30.9 28.9 71.1

All sectors 65.6 34.4 52.5 47.5 39.0 61.0

Note: ^a Labour cost shares by labour type differ from those in Chapter 4 as different benchmark years are used (see Chapter 5). ^b Cost shares for capital assets are based on efficiency unit estimates and are calculated assuming that the return to each efficiency unit is equal across assets.

Source: Aggregate capital and labour shares are calculated from the GTAP Version IV database (McDougall et al. 1998). Other cost shares are calculated from estimates derived in Chapter 4.

1 Cost shares for capital assets are based on efficiency unit estimates, as in Table 4.7, and are calculated assuming that the return to each efficiency is equal across assets.

Table 6.4

GDP, factor cost and trade shares, and measures of growth, percent United

Unskilled manufacturing 12.2 15.2 28.4 18.0

Skilled manufacturing 14.6 15.9 20.2 16.8

Trade relative to GDP^b

Unskilled manufacturing 163.8 102.5 98.1 102.6 Skilled manufacturing 187.5 111.7 161.5 127.5

Unskilled services 17.8 11.2 23.8 14.0

Skilled services 13.0 9.2 15.8 10.3

All sectors 58.4 40.4 70.8 47.8

GDP growth (1980-95) 55.0 54.5 209.3 77.5

Note: ^a Factor cost shares are relative to value added. ^b Trade is defined as the sum of exports and imports.

Source: Shares for GDP, factor costs and trade are calculated from the GTAP Version IV Database (McDougall, 1998). Real GDP growth rates are GDP weighted averages from the World Bank’s World Tables database.

Table 6.4 presents an overview of the global database and summarises production, factor endowments, trade, and GDP growth in each region. The first section of this table indicates that the UK is a small region in the world economy and that the majority of global production, approximately 65 percent, is concentrated in services with a near even split within this category between skill-intensive and unskilled-intensive production. The relative importance of service sectors, however, varies across regions. In developed regions (United Kingdom and Other Developed) the GDP contribution of services is more than twice that of manufacturing, whereas services only marginally account for a greater share of GDP than manufacturing in the Rest of World. Also, unskilled manufacturing is the largest contributor to GDP

in the Rest of World economy but the smallest in developed regions. The second section of the Table 6.4 displays factor shares as proportions of value added. To enable comparisons across countries, unskilled and skilled labour shares are calculated using GTAP’s classification of labour types (Lui et al., 1998) and capital is treated as a homogenous factor in all regions. Again, two regions are identifiable in the data. Developed regions are relatively abundant in aggregate labour while the Rest of World is relatively abundant in capital.² Moreover, approximately 40 percent of labour payments are made to skilled labour in developed regions while the corresponding figure in the developing region is smaller than thirty percent.

Combined with the data on GDP shares, these observations indicate that global production, broadly speaking, follows a Heckscher-Ohlin pattern. Specifically, production in developed regions, which are abundant in skilled labour, is skewed towards skilled services, and production in the unskilled-labour-abundant Rest of World is concentrated in unskilled manufacturing. The distribution of skilled manufacturing and unskilled services across the global economy does not follow a Heckscher-Ohlin pattern according to relative endowments of different types of labour, but is consistent with the Rest of World region being relatively abundant in capital.

The value of trade relative to GDP is presented in the third section of Table 6.4.

Trade is defined as the sum of exports plus imports. Regional aggregates indicate that the Rest of World is the most open economy and the Other Developed region the least. Sectoral aggregates show that the two manufacturing sectors are heavily

2 Payments to land and natural resources total one percent of value added payments in the developed region and six percent in the developing region; consequently, the figures are only slightly distorted by classifying land and natural resources as capital.

traded, particularly skilled manufacturing. The final section of Table 6.4 presents changes in GDP. The figures indicate that the increase in the size of the Rest of World region is approximately four times that of the two developed regions over the sample period.

Table 6.5

UK trade shares and proportions of trade as net-exports

Sector Other Developed Rest of World All Regions Trade Net-exp. Trade Net-exp. Trade Net-exp.

Unskilled manufacturing 25.7 -14.6 8.4 -21.7 34.1 -16.3

Skilled manufacturing 37.5 -3.4 9.2 19.4 46.7 1.1

Unskilled services 7.3 -10.8 3.4 14.5 10.7 -2.8

Skilled services 6.3 12.5 2.2 31.2 8.5 17.4

All industries 76.8 - 23.2 - 100.0 -

Note: ^a Trade values calculated as the summation of import plus exports, relative to total UK trade. ^b Net exports are defined as export minus imports and are expressed relative to trade values.

Source: GTAP Version IV Database (McDougall et al., 1998).

Table 6.5 analyses UK trade by trading partner and sector and displays trade values, expressed as proportions of total UK trade, and proportions of trade values as net exports (exports minus imports). Regional aggregates reveal that the majority of UK trade, over three-quarters, is with the Other Developed region. Although sectoral aggregates indicate that the UK is a net-importer of unskilled-intensive products and a net-exporter of skill-intensive commodities, nearly all UK trade in skilled-manufacturing and unskilled-services is intra-industry trade. Inter-industry trade is much larger in unskilled-manufacturing and skilled-services products, where clear Heckscher-Ohlin production patterns are present (see above). Other evidence that trade is partially driven by factor endowments is that 20.7 percent of UK trade with the Rest of World is in the form of inter-industry trade compared to 8.6 percent of UK trade with the Other Developed region.

6.4 MODIFICATIONS TO THE GTAPinGAMS MODEL AND