Technological Change and Service Industry Market Share

This study uses panel GMM estimation to investigate the role of technological competence in the international competitiveness of service industries within OECD countries. Relative prices, economies of scale, diffusion of IT, human capital, R&D expenditure and investment in capital formation are used as explanatory variables in regression of data for twenty-one OECD countries during the 2001~07 period. Some of the major findings of the study can be summarized as follows: First, relative prices have a limited impact on international competitiveness while technological competence as measured by R&D expenditure and diffusion of IT plays an important role in international service industry competitiveness. Specifically, R&D expenditure has a positive and significant impact on international competitiveness in transportation and telecommunications services while IT diffusion has a positive impact on international competitiveness in finance, insurance and business services. Second, it is shown that other variables, including human capital and investment in machines and equipment, also contribute to international competitiveness. Third, the empirical results confirm the high degree of heterogeneity in the service sector; the impact of technological competence on international competitiveness differs among the service industries.