{"id":1475,"date":"2018-01-17T08:37:16","date_gmt":"2018-01-17T08:37:16","guid":{"rendered":"http:\/\/blogs.sussex.ac.uk\/uktpo\/?page_id=1475"},"modified":"2022-10-12T13:10:18","modified_gmt":"2022-10-12T12:10:18","slug":"brexit-and-regional-services-exports-a-heat-map-approach","status":"publish","type":"page","link":"https:\/\/blogs.sussex.ac.uk\/uktpo\/publications\/brexit-and-regional-services-exports-a-heat-map-approach\/","title":{"rendered":"Brexit and Regional Services Exports: A Heat Map Approach"},"content":{"rendered":"<div id=\"attachment_1530\" style=\"width: 222px\" class=\"wp-caption alignright\"><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Briefing-paper-14-Heatmap-final.pdf\"><img aria-describedby=\"caption-attachment-1530\" loading=\"lazy\" class=\"wp-image-1530 size-medium\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Briefing-paper-14-front-page-1-212x300.jpg\" alt=\"\" width=\"212\" height=\"300\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Briefing-paper-14-front-page-1-212x300.jpg 212w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Briefing-paper-14-front-page-1-768x1086.jpg 768w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Briefing-paper-14-front-page-1-724x1024.jpg 724w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Briefing-paper-14-front-page-1.jpg 1654w\" sizes=\"(max-width: 212px) 100vw, 212px\" \/><\/a><p id=\"caption-attachment-1530\" class=\"wp-caption-text\">Download this Briefing Paper<\/p><\/div>\n<h3>Briefing Paper 14<\/h3>\n<h3>11 January 2018<\/h3>\n<h3>Ingo Borchert and Nicolo Tamberi<\/h3>\n<p><a href=\"#keybp14\">Key Points<\/a><\/p>\n<p><a href=\"#introbp14\">Introduction<\/a><\/p>\n<p><a href=\"#spatialbp14\">The Spatial Distribution of Services Exports Across the UK<\/a><\/p>\n<p><a href=\"#relationshipbp14\">Trade Relationship with the EU<\/a><\/p>\n<p><a href=\"#embodiedbp14\">Trade in Embodied Services<\/a><\/p>\n<p><a href=\"#crossbp14\">Growth of Cross-Border Services Exports over Time<\/a><\/p>\n<p><a href=\"#conclusionbp14\">Conclusion<\/a><\/p>\n<p><a href=\"#furtherbp14\">Further Information<\/a><\/p>\n<p><a href=\"#principalbp14\">Principal Data Sources<\/a><br \/>\n<a name=\"keybp14\"><\/a><\/p>\n<h2>Key Points<\/h2>\n<p>This Briefing Paper describes the rich pattern of UK regional services exports. The aim is to provide a \u201cheat map\u201d for understanding better how Brexit might affect the services export prospects of UK regions.<\/p>\n<ul>\n<li>Reflecting the general concentration of economic activity in and around London, services exports too are spatially concentrated here, as London and the South East accounted for 62% of all services exports in 2015. There is no denying that, depending on the as yet unspecified Brexit conditions, there will be a substantial impact on services exports in the South.<\/li>\n<li>There is more to services exports than financial services out of London. In between the South East and the five smallest exporting regions, there is a middle tier of regions encompassing the North West, Scotland, East of England and the South West that contribute significantly to services exports, between them they account for 25% of total services exports.<\/li>\n<li>Regions with the largest export values are not necessarily those that are most focussed on the EU. In fact, the North East and West Midlands respectively, followed by the South East, are the regions that export the most to EU countries overall, relative to non-EU destinations.<\/li>\n<li>In terms of sectors, services exports by firms from the wholesale\/motor trade sector are predominantly oriented towards the EU, whereas professional\/real estate services exports mostly go to non-EU destinations. The orientation of services exports from manufacturing sector firms is geographically more diverse, with regions in the North exporting more to the EU than regions in the South.<\/li>\n<li>These facts suggest that regions such as the North East or the Midlands may potentially be more vulnerable to Brexit shocks because of the sectoral composition of their services exporters and their orientation towards EU markets. At the same time, such regions may derive some resilience from the fact that services exports from the manufacturing, ICT and professional business services sectors have grown buoyantly over the past few years. A lot of this growth has occurred in Scotland, the North West, Yorkshire or the North East. This \u201cNorthern success story\u201d in services contrasts with a recent shrinkage of financial services exports out of London.<\/li>\n<li>The consideration of indirect services exports\u2014as inputs embodied into manufacturing exports\u2014adds another \u00a350 billion to the picture, which is roughly equivalent in magnitude to a year\u2019s worth of financial services exports. Indirect services exports are more evenly spread across UK regions than cross-border services exports, thereby again potentially lending some resilience to smaller regions in the North. However, demand for embodied services inputs is reliant on unfettered market access for UK manufactures abroad.<\/li>\n<\/ul>\n<p><a name=\"introbp14\"><\/a><!--more--><\/p>\n<h2>Introduction<\/h2>\n<p>Unless Brexit involved maintaining Single Market levels of access for services, the exit from the European Union (EU) will likely have significant ramifications for services trade because the Single Market has been particularly salient for facilitating the international exchange of services. Yet the discussion of potential effects on the British economy of Brexit has largely been confined to manufacturing sectors at the national level.\u00a0 Less attention has been paid to services sectors, even though the UK economy is particularly strong in exporting services.\u00a0 To date, hardly any attention has been given to the spatial dimension of Brexit, i.e. the differential impact on UK regions because of the geographical specialisation of regions in certain services sectors.<\/p>\n<p>To address this void, we describe the rich pattern by which UK regions are exporting different kinds of services. In particular, we trace the extent to which UK regions export services relatively intensively to EU countries relative to other destinations outside the EU.\u00a0 If Brexit resulted in a deterioration of market access for services to the EU, our results illustrate the extent to which this change may be felt differently across UK regions, because of regional differences in both service sector specialisation and direction of services exports, respectively.\u00a0 The importance of considering services exports is further underpinned by the fact that more than half of all UK businesses that traded internationally in 2016 (156,500) are from the non-financial services sector.[1]<\/p>\n<p>Based upon newly released data from the Office for National Statistics (ONS), we compile a dataset of detailed services exports by 11 broad UK regions, by principal services sectors and, when possible, by destination so as to disentangle exports to the EU vs non-EU destinations.[2]\u00a0 We also exploit regional export statistics of manufacturing goods from HMRC to augment the analysis of cross-border services trade with information about services indirectly exported as inputs into manufacturing exports.\u00a0 The combined information creates a \u201cheat map\u201d that shows which UK regions are particularly exposed to trade with the EU in which services products, and thus which parts of the UK are most vulnerable to potential changes in trading conditions post-Brexit.[3]\u00a0 Because of the method used by ONS to attribute national services exports to regions in proportion to firm-level employment shares, our results are also indicative\u2014albeit indirectly\u2014of \u201cjobs at risk\u201d by changes in the trading environment.<\/p>\n<p>The analysis of regional UK services exports at hand should be read with two principal caveats in mind. It should first be noted that this Briefing Paper does not consider services trade via foreign direct investment or through the international movement of service professionals, respectively.\u00a0 Both kinds of transactions often facilitate and complement cross-border services trade and indirect services exports.\u00a0 Brexit-related changes to conditions for investment or service professionals may have knock-on effects on services trade that have not been considered in this Briefing Paper.<\/p>\n<p class=\"p2\">Second, successful export of services may be contingent on services imports through one or more modes of supply, but this aspect too has been omitted as data on regional services imports are not available at the same level of granularity as the services export data that are underpinning this Briefing Paper.<\/p>\n<p class=\"p2\"><a name=\"spatialbp14\"><\/a><\/p>\n<h2>The Spatial Distribution of Services Exports Across the UK<\/h2>\n<p>It is not surprising that London tops the list of 11 regions of Great Britain\u2014excluding Northern Ireland for data reasons\u2014in terms of services exports by a wide margin. Nearly half of all UK services exports in a given year originate from London (Table 1).\u00a0 The second most services export intensive region is the South East.\u00a0 Indeed, 40% of internationally trading businesses are located in London and the South East, respectively.[4]<\/p>\n<p style=\"text-align: center\"><span style=\"color: #008080\">Table 1: Total services export, by region and year, \u00a3m<\/span><\/p>\n<div id=\"attachment_1671\" style=\"width: 810px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-1-BP14.jpg\"><img aria-describedby=\"caption-attachment-1671\" loading=\"lazy\" class=\"wp-image-1671 size-large\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-1-BP14-1024x532.jpg\" alt=\"\" width=\"800\" height=\"416\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-1-BP14-1024x532.jpg 1024w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-1-BP14-300x156.jpg 300w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-1-BP14-768x399.jpg 768w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-1-BP14.jpg 1080w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/a><p id=\"caption-attachment-1671\" class=\"wp-caption-text\">Sources: Office for National Statistics (2017b); Office for National Statistics (2017c); and authors\u2019 calculations. Notes: Annual figures comprise functional categories that combine SIC categories from ITIS as well as commodity categories from the Balance of Payments (Transportation, Finance, and Insurance &amp; Pension, respectively) and from the International Passenger Survey (Travel).<\/p><\/div>\n<p>Given the dominant position of London and the South East, the spatial distribution of services exports across UK regions is fairly skewed, with some distinct layers. Outside the capital region, the North West and Scotland are, respectively, the strongest services exporting regions, which is perhaps less widely appreciated compared to the obviously dominant position of London.\u00a0 Beyond those four regions, the East of England and the South West also record sizable services exports.\u00a0 Of the remaining five regions, the lowest value of annual services exports originate from Wales and the North East, respectively.[5]<\/p>\n<p>Just how significant these services export values are for a given region depends on the local production structure, i.e. how important services are relative to all economic output, and on trade openness, i.e. how much of services production is actually exported. Regarding the former aspect, the share of services in gross value added (GVA) is invariably 80% or more for every nation and region, with not much variation.[6] Regions do differ in their trade openness, though. Figure\u00a01, below, depicts the ratio of total services exports over total regional GVA in 2015, and regions appear in the same order as in Table\u00a01, i.e. those with highest services export values first.\u00a0 Because GVA and trade are measured in different terms, the actual values of the ratio depicted should not be taken too literal; nonetheless, two insights can be obtained: there is a fair amount of variation in services trade openness across regions [7], and trade openness is related to trade values: regions with larger services exports also tend\u00a0to export a higher share of their local output.<\/p>\n<p style=\"text-align: center\"><span style=\"color: #008080\">Figure 1: Ratio of total services exports to total GVA, by region, 2015, in percent<\/span><\/p>\n<div id=\"attachment_1696\" style=\"width: 810px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure1_blue-pngbp14.png\"><img aria-describedby=\"caption-attachment-1696\" loading=\"lazy\" class=\"size-large wp-image-1696\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure1_blue-pngbp14-1024x745.png\" alt=\"\" width=\"800\" height=\"582\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure1_blue-pngbp14-1024x745.png 1024w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure1_blue-pngbp14-300x218.png 300w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure1_blue-pngbp14-768x559.png 768w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure1_blue-pngbp14.png 1650w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/a><p id=\"caption-attachment-1696\" class=\"wp-caption-text\">Sources: Office for National Statistics (2017b); Office for National Statistics (2016) \u201cRegional gross value added (income approach) reference tables: Table 6\u201d; and authors\u2019 calculations. Notes: 2015 figures of regional GVA are denoted \u2018provisional\u2019 in ONS Table 6. Total services export figures comprise functional categories that combine SIC categories from ITIS as well as commodity categories from the Balance of Payments (Transportation, Finance, and Insurance &amp; Pension, respectively) and from the International Passenger Survey (Travel).<\/p><\/div>\n<p><a name=\"relationshipbp14\"><\/a><\/p>\n<h2>Trade Relationship with the EU<\/h2>\n<h3><span style=\"color: #000000\">The Geography of Services Exports to the EU<\/span><\/h3>\n<p>In terms of the potential consequences resulting from Brexit, a pressing question is to what extent UK services exports rely on the EU as market access to EU-27 member states may arguably deteriorate depending on what kind of deal, if any, is struck. On a national level, 40% of services exports (\u00a390 billion)[8] are destined for the EU-27 according to the Pink Book 2016. However, individual UK regions differ appreciably in terms of how much of their overall exports go to the EU, irrespective of the magnitude of their respective exports in absolute terms.<\/p>\n<p>Figure\u00a02 depicts the ratio of export to the EU relative other (ie. non-EU) destinations for total export (excluding travel, transport, insurance and pension and financial services).[9] Regions with higher shares of EU exports are shaded in dark whereas those with the lowest share are set in light grey. The North East is most exposed to EU as a destination market as nearly half of its export go to the EU, followed by the West Midlands (45%).\u00a0 The middle tier consists of regions which direct around one third of their exports to the EU.[10] At the other end, Scotland and the North West are least exposed to the EU market as only about one quarter of their services exports are destined for EU, although both regions contribute significantly to overall services exports (see Table 1).<\/p>\n<p style=\"text-align: center\"><span style=\"color: #008080\">Figure 2: Share of services exports to the EU in 2015, by region, quartile brackets<\/span><\/p>\n<div id=\"attachment_1683\" style=\"width: 187px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figue2_bp14.png\"><img aria-describedby=\"caption-attachment-1683\" loading=\"lazy\" class=\"wp-image-1683 size-medium\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figue2_bp14-177x300.png\" alt=\"\" width=\"177\" height=\"300\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figue2_bp14-177x300.png 177w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figue2_bp14-768x1302.png 768w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figue2_bp14-604x1024.png 604w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figue2_bp14.png 1200w\" sizes=\"(max-width: 177px) 100vw, 177px\" \/><\/a><p id=\"caption-attachment-1683\" class=\"wp-caption-text\">Sources: Office for National Statistics (2017a); and authors\u2019 calculations. Notes: Services export values only comprise functional SIC categories from ITIS.<\/p><\/div>\n<p>The rendition of London in Figure\u00a02 requires a special caveat, as the numbers underpinning the map suggest that only about one-third of London\u2019s services exports are destined for the EU. This conspicuously low share is mostly a consequence of the lack of information on four service categories (transportation, travel, financial and insurance services, respectively; see endnote 9 above).\u00a0 Trade in financial services, which as a sector constitutes the single biggest item in national services exports, are largely transacted out of London, and the capital does also account for a sizable share of inbound tourism.\u00a0 Hence, Figure\u00a02 should rather not be construed as suggesting that London wouldn\u2019t be depending on services exports to the EU.\u00a0 But apart from London, the map does point towards those regions whose services exports are geared the most towards EU countries, namely the North East and the West Midlands.<\/p>\n<p>The exposure of regional services exports to the EU bears some resemblance with the structure of regional goods exports. For instance, the three regions with the highest relative share of services exports going to the EU in 2015 (just shy of 50%) are the North East, the West Midlands and the South East; those three regions also sends about half of their goods exports towards the EU.[11] At the same time, other regions exhibit greater differences. Scotland too ships half of its goods to the EU but only about 25% of its services.\u00a0 Likewise, two-thirds of Welsh goods exports go to the EU whereas only one-third of its services exports travel that way; that is, both services exports in both these regions are less EU focused than its merchandise goods exports.<\/p>\n<h3>EU Orientation Across Services Sectors<\/h3>\n<p>The varying degree to which regions rely on the EU market for their services exports is driven in part by specialisation across UK regions in certain services sectors. Therefore we now discuss in greater detail the sectoral dimension of regional exports.\u00a0 One stylised fact emerging from the data is the insight that European trade partners attract exports from some services sectors more than others, so that there are sectors whose exports are mainly geared towards the EU, and conversely other services that would typically go to non-EU destinations.<\/p>\n<p>At the same time, within every service sector there are regions that are relatively more oriented to the EU than other regions; for instance, firms from the manufacturing sector located in the North East direct the majority of their services exports to EU destinations, whereas firms from the same sector located in the North West (or in Scotland) send their services mainly to non-EU countries. Our analysis shows that most EU-focused regions vary by sector.\u00a0 This diversity implies that all regions have an interest in open EU markets, albeit arising from services exports of different sectors.<\/p>\n<p>We begin by computing the ratio of services export directed to the EU relative to the value of exports heading elsewhere, broken out by region and sector (Table 2). Data are for 2015, the most recent available year.\u00a0 Entries highlighted in orange signify those region-sector combinations that are most reliant on the EU market (the 25% of table entries with the highest EU share).\u00a0 Green entries denote the least exposed region-sector combinations (i.e. the 25% with the lowest EU orientation).<\/p>\n<p style=\"text-align: center\"><span style=\"color: #008080\">Table 2: Share of services export to the EU, by region and sector, 2015<\/span><\/p>\n<div id=\"attachment_1674\" style=\"width: 810px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-2-bp14.jpg\"><img aria-describedby=\"caption-attachment-1674\" loading=\"lazy\" class=\"wp-image-1674 size-large\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-2-bp14-1024x489.jpg\" alt=\"\" width=\"800\" height=\"382\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-2-bp14-1024x489.jpg 1024w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-2-bp14-300x143.jpg 300w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-2-bp14-768x367.jpg 768w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-2-bp14.jpg 1881w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/a><p id=\"caption-attachment-1674\" class=\"wp-caption-text\">Sources: Office for National Statistics (2017a); and authors\u2019 calculations. Notes: Entries denote the share, in percent, of regional services exports by sector that are directed to EU countries. The export share to non-EU destinations is implicitly given by (100 \u2013 cell entry). Dots denote instances in which the EU share could not be computed because export values at the region-sector level are suppressed on ONS publications for confidentiality reasons. Column entries only comprise functional SIC categories from ITIS.<\/p><\/div>\n<p>Looking at spatially disaggregated services exports in this way reveals a clear sectoral pattern. Services exports by firms from the wholesale\/motor trade and from the primary sector, respectively, are those predominantly oriented towards the EU.\u00a0 That is, regional exports of these kinds of services are typically directed towards the EU.\u00a0 The same is true, to a lesser extent, for the administrative support and the retail trade categories.\u00a0 The pronounced orientation of services from the \u201cwholesale\/motor trade\u201d sector is likely linked to the close EU integration of the British automotive industry in both intermediate and final goods.<\/p>\n<p>Conversely, services exports by firms from the diverse professional services\/real estate sector are mostly geared towards non-EU destinations. In terms of impact for the real economy it is worth recalling that within non-financial services, the largest share in the total number of businesses trading internationally comes from the professional, scientific and technical services sector (58,100 businesses, or 37.1% in 2016).\u00a0 Some of these professional business services, e.g. architectural services or management consulting, are easily traded over the Internet; thus these services exhibit a rather low distance elasticity, which could be one reason why these sectors are relatively intensively exported to ROW destinations. Moreover, exports from the construction sector also tend to go to non-EU destinations.<\/p>\n<p>Beyond those sectors in which most regions export to the same destination (either EU or rest of the world), the orientation of services exports from manufacturing sector firms is geographically more diverse, with regions in the North exporting more to the EU than Southern regions in this sector. Specifically, manufacturing firms in Scotland, the North West and the South West send the majority of their services to the rest of the world, whilst those in the North East, the West Midlands and London focus mainly on the EU.\u00a0 Again a good deal of this pattern is plausibly linked to the location of the British automotive industry.<\/p>\n<h3>Regional Patterns of EU Exposure Across Sectors<\/h3>\n<p>Apart from those sectors in which exports are predominantly geared either towards the EU or towards the rest of the world across most regions, there are sectors that contribute a lot to overall services export values in which there is greater regional specialisation in terms of export destination. To illustrate this point, Figures\u00a03(a) and 3(b) display individual regions\u2019 shares of exports to the EU for services exports from two important sectors, namely manufacturing and ICT, respectively.<\/p>\n<p>The comparison shows that the exposure of regions to the EU can vary a great deal, depending on the sector. Moreover, apart from the West Midlands which sends 50% of its exports to the EU in both manufacturing and ICT services, it is an entirely different set of regions that rely on the EU in these two sectors.\u00a0 The North East, London and the East of England are, respectively, the three regions most engaged in EU trade for manufacturing sector firms whereas the South East, the South West and Wales are correspondingly the three most exposed regions when it comes to services exports of ICT sector firms.<\/p>\n<p style=\"text-align: center\"><span style=\"color: #008080\">Figure 3: Shares of services exports to the EU in 2015, by region, percent<\/span><\/p>\n<p style=\"text-align: center\"><span style=\"color: #008080\">A) Manufacturing<\/span><\/p>\n<p style=\"text-align: center\"><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-A-bp14.png\"><img loading=\"lazy\" class=\"aligncenter wp-image-1690\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-A-bp14-1024x745.png\" alt=\"\" width=\"680\" height=\"494\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-A-bp14-1024x745.png 1024w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-A-bp14-300x218.png 300w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-A-bp14-768x559.png 768w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-A-bp14.png 1650w\" sizes=\"(max-width: 680px) 100vw, 680px\" \/><\/a><br \/>\n<span style=\"color: #008080\">B) ICT sector<\/span><\/p>\n<p><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-B-bp14.png\"><img loading=\"lazy\" class=\"wp-image-1691 aligncenter\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-B-bp14-1024x745.png\" alt=\"\" width=\"677\" height=\"492\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-B-bp14-1024x745.png 1024w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-B-bp14-300x218.png 300w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-B-bp14-768x559.png 768w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-B-bp14.png 1650w\" sizes=\"(max-width: 677px) 100vw, 677px\" \/><\/a><\/p>\n<p style=\"text-align: center\">\u00a0<span style=\"color: #008080\">C) Professional services and real estate<\/span><\/p>\n<p><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-C-bp14.png\"><img loading=\"lazy\" class=\"wp-image-1692 aligncenter\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-C-bp14-1024x745.png\" alt=\"\" width=\"647\" height=\"471\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-C-bp14-1024x745.png 1024w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-C-bp14-300x218.png 300w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-C-bp14-768x559.png 768w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure-3-C-bp14.png 1650w\" sizes=\"(max-width: 647px) 100vw, 647px\" \/><\/a><\/p>\n<p style=\"text-align: center\"><em>Sources: Office for National Statistics (2017a); and authors\u2019 calculations.<\/em><br \/>\n<em> Notes: Sector definitions correspond to functional SIC categories from ITIS<\/em>.<\/p>\n<p>Charts like the ones in Figure\u00a03 are useful for highlighting those regions that export relatively intensively to the EU in any given sector, even when the EU orientation is not large enough to be exposed by orange flags in Table\u00a02. For instance, as a whole exports from the professional and real estate services sector are not particularly focused on EU countries; however, that sector\u2019s respective radar chart\u2014Figure\u00a03(c)\u2014reveals that Yorkshire and the Humber has, by a considerable margin, the highest EU share of all regions in these kinds of exports (43%).\u00a0 Under the umbrella of professional business services, specific activities such as legal, accounting or engineering services are highly regulated and thus exports could potentially be quite vulnerable to exiting the Single Market.\u00a0 Figure\u00a03 would thus suggest that the potential future loss of Single Market access would fall on businesses (and service sector jobs) in Yorkshire and the South East.<\/p>\n<p>As negotiations over a future UK-EU trade deal have not yet begun, we cannot know how market access conditions in the EU for services exports will change, and whether conditions would change in a differential manner for, say, the three sectors discussed above. Even if conditions for exports would change in a similar way across the board post-Brexit, Figure\u00a03 would suggest that the majority of regions would be affected, albeit in different sectors.<br \/>\n<a name=\"embodiedbp14\"><\/a><\/p>\n<h2>Trade in Embodied Services<\/h2>\n<h3>Services Exports Embodied in Manufacturing Exports<\/h3>\n<p>Statistical evidence on services trade tends to focus on \u201ccross-border services trade\u201d because of the availability of data on this particular type of services trade. It refers to the value of disembodied services\u2014such as telecommunications services\u2014traded between domestic firms and residents abroad. \u00a0This information is either collected as part of the Balance of Payments or obtained from ONS firm-level surveys.\u00a0 There are, however, multiple other modes of trading services which are generally no less important but which are more elusive because data are not readily available.<\/p>\n<p>One important source of demand for services are services inputs into manufacturing goods, which are subsequently destined for export. In that way, services inputs are indirectly exported as value added embodied in manufacturing exports.\u00a0 In reference to the four modes of services trade [12] as recognised by the World Trade Organization, this particular kind of services trade is sometimes called \u201cMode\u00a05\u201d services trade. Because sophisticated manufactures such as cars require a substantial amount of services inputs, there is evidence that Mode 5 services trade is quantitatively quite important.\u00a0 The OECD\/WTO Trade in Value Added (TiVA) database indicates that 21.3% of the gross value of UK manufacturing exports in 2011 consisted of domestic services inputs. [13]<\/p>\n<p>Whilst precise statistics of Mode 5 services trade do not exist and even estimates are hard to come by, the internationally integrated structure of the UK economy strongly suggests that it is important to consider this type of services trade too. Hence, in order to obtain at least a ballpark estimate of the magnitudes involved, we combine regional goods export statistics from HMRC for 2011-15 and apply the latest available share of embodied services inputs at the national level to these exports.[14] Over the past decade this share of domestic services value added has been roughly stable (it stood at 24.2% in 2000); therefore, applying the 2011 share to later years is likely to be close to the true value. This exercise, albeit imperfect, enables us for the first time to obtain \u201cguesstimates\u201d of the order of magnitude of <em>indirect<\/em> services exports by region and destination, thereby replicating the exposition in the previous two sections for cross-border services trade now for indirect services exports. [15]<\/p>\n<p>We find that domestic services value added embodied in manufacturing exports is worth more than \u00a350bn per year, roughly the same amount as all financial services exports. These indirect services exports are more evenly distributed across regions than direct cross-border services exports.\u00a0 Thus it is typically a non-negligible share of a region\u2019s total services exports, i.e. cross-border and Mode 5 combined.\u00a0 In 2015, the value of Mode 5 exports ranges from \u00a32.5bn (North East) to \u00a38.2bn (South East).\u00a0 London comes second at \u00a36.4bn.<\/p>\n<p>Figure\u00a04 shows the value (in million \u00a3) of combined regional services exports in declining order (upper chart) as well as the shares of mode 1 and mode 5 exports, respectively, in a region\u2019s total services exports. Whilst London is by far the dominant region in terms of value of cross-border services exports, as shown in the previous section and in Figure\u00a04 below, London\u2019s runner-up position in Mode 5 exports is not surprising as London\u2019s share of manufacturing gross value added (GVA) is a bare 2.2% of its regional total GVA.<\/p>\n<p style=\"text-align: center\"><span style=\"color: #008080\">Figure 4: Direct and indirect services exports, by region, 2015<\/span><\/p>\n<p><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure4top_nolabbp14-cropped.png\"><img loading=\"lazy\" class=\"wp-image-1685 size-large aligncenter\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure4top_nolabbp14-cropped-1024x614.png\" alt=\"\" width=\"800\" height=\"480\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure4top_nolabbp14-cropped-1024x614.png 1024w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure4top_nolabbp14-cropped-300x180.png 300w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure4top_nolabbp14-cropped-768x460.png 768w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure4top_nolabbp14-cropped.png 1650w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/a><\/p>\n<div id=\"attachment_1686\" style=\"width: 810px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure4bottom_notitle1bp14.png\"><img aria-describedby=\"caption-attachment-1686\" loading=\"lazy\" class=\"size-large wp-image-1686\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure4bottom_notitle1bp14-1024x745.png\" alt=\"\" width=\"800\" height=\"582\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure4bottom_notitle1bp14-1024x745.png 1024w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure4bottom_notitle1bp14-300x218.png 300w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure4bottom_notitle1bp14-768x559.png 768w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure4bottom_notitle1bp14.png 1650w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/a><p id=\"caption-attachment-1686\" class=\"wp-caption-text\">Sources: ONS (2017a); HMRC export statistics by region; OECD\/WTO TiVA Database; and authors\u2019 calculations.<\/p><\/div>\n<p>For regions other than London and the South East, where exports of financial and professional business services are heavily concentrated, the value of embodied services inputs can constitute a sizable share of a region\u2019s overall services exports (Figure\u00a04 lower graph). In particular, for the North East and the West Midlands the value of services they export through manufactures constitutes over 40% of their combined services exports.\u00a0 The share of Mode 5 trade is equally high for the East Midlands and Wales, respectively.\u00a0 The success of mode 5 services exports, however, depends <em>inter alia<\/em> on favourable market access conditions for UK manufacturing goods abroad.\u00a0 Figure\u00a04 demonstrates that for a number of regions outside the South East, services trade and employment depend as much on partner countries\u2019 services trade policies as on their goods trade conditions. [16]<\/p>\n<h3>Mode 5 Exports by Destination<\/h3>\n<p>The manufacturing export statistics by region from HMRC come with destination information, so that it is possible to disentangle the share of embodied services exports to the EU and other non-EU countries (ROW). In 2015, the destination share of mode 5 exports that goes to the EU ranges from 40-60%, which is a reflection of the rule of thumb that roughly half of UK merchandise exports are destined for the EU.\u00a0 Wales and the North East, respectively, are the regions most focussed on EU destinations, whereas London and the West Midlands directly only about 40% of their manufacturing exports\u2014and thus embodied services exports\u2014towards the EU (Figure\u00a05).<\/p>\n<p>Within this 40-60 percent band, the previous years since 2011 have witnessed a considerable re-orientation of regional manufacturing exports with respect to EU destinations. EU export shares of regions such as Scotland or Wales, amongst the lowest of all regions in 2011, have increased considerably, and as mentioned above, at 60% Wales now exhibits the highest exposure to EU economies for its manufacturing exports.\u00a0 Conversely, the South West and East of England, which had the highest shares in 2011, have seen a quite dramatic fall in their EU share.\u00a0 That is, with regard to their orientation towards the EU, there has been rapid dynamic change across regions in terms of destination for their indirect mode 5 exports, with some regions clearly exporting more to EU destinations whereas others diversifying away.<\/p>\n<p>In particular, the regions in Figure\u00a05 are ordered in decreasing order of mode 5 services exports, i.e. from highest to lowest 2015 values of embodied services inputs. It is apparent that the four regions to the left (London, South East, North West and East) have all seen their EU share of mode 5 services exports fall, sometimes quite dramatically.\u00a0 Over the same period, regions with smaller services trade volumes such as the East Midlands, Wales and the North East have shipped relatively more manufacturing exports to the EU.\u00a0 Since the former regions account for the bulk of mode 5 services exports, the UK as a whole has probably come to rely relatively less on EU destinations for indirect services exports.\u00a0 Yet this recent development is driven by the (re-)orientation of manufacturing exports of \u201ccore\u201d regions in the South East; it is concomitant with smaller regions focussing more strongly on EU markets.\u00a0 It would appear that these two opposite trends leave the smaller, more peripheral regions more exposed to Brexit-related changes in market access conditions for manufactures to EU countries.<\/p>\n<p style=\"text-align: center\"><span style=\"color: #008080\">Figure 5: Share of mode 5 exports to the EU by region, 2011 and 2015<\/span><\/p>\n<div id=\"attachment_1697\" style=\"width: 810px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure5_notitlebp14.png\"><img aria-describedby=\"caption-attachment-1697\" loading=\"lazy\" class=\"size-large wp-image-1697\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure5_notitlebp14-1024x745.png\" alt=\"\" width=\"800\" height=\"582\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure5_notitlebp14-1024x745.png 1024w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure5_notitlebp14-300x218.png 300w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure5_notitlebp14-768x559.png 768w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure5_notitlebp14.png 1650w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/a><p id=\"caption-attachment-1697\" class=\"wp-caption-text\">Sources: ONS (2017a); HMRC export statistics by region; OECD\/WTO TiVA Database; and authors\u2019 calculations.<\/p><\/div>\n<p>These diverging short-run developments unfolded against the longer-term secular trend that, since 1996, the EU share of manufacturing exports\u2014and thus indirect services inputs\u2014has invariably been falling for all UK regions. This general fall is a result of the fact that after the global crisis in 2008 the value of manufacturing exports to EU economies fell whereas it mostly held up to ROW destinations. [17]\u00a0Nonetheless, latest figures would suggest that the EU exposure for indirect services exports has increased markedly over recent years for geographically peripheral regions such as Scotland or Wales.<br \/>\n<a name=\"crossbp14\"><\/a><\/p>\n<h2>Growth of Cross-Border Services Exports over Time<\/h2>\n<p>Returning to ONS statistics of cross-border services trade, export growth has generally been very solid. The value of aggregate cross-border services exports rose by 15.2% over the period 2011-15, or 3.6% on average every year.\u00a0 This reflects the strong position of the UK economy in services sectors and has led to a further expansion of the current account surplus in services, which partly offsets the ever-widening trade deficit from merchandise goods trade. [18]<\/p>\n<p>Yet, the robust overall export growth is the net result of different trends. Looking at growth rates in individual sectors, three observations stand out: first, growth rates have been particularly high in certain sectors whose export values are fairly small; for instance, administrative support services, health and education, or the construction sector.\u00a0 In such instances, high growth rates result somewhat mechanically from low numbers in the base year.\u00a0 But these sectors only make up a small share of aggregate services exports, and hence their double-digit growth rates do not drive aggregate growth.\u00a0 Second, exports in the single biggest item\u2014financial services\u2014have essentially stayed stagnant over the past four years, and exports of insurance and pension services have actually shrunk.\u00a0 Thus the financial sectors\u2014often regarded as the \u2018crown jewel\u2019 and one of the most successful UK services sectors\u2014is not driving aggregate export growth either.\u00a0 Instead, thirdly, services exports that are quantitatively important <em>and<\/em> have grown significantly over the past few years emanate from the manufacturing sector (9.2% on average per annum), the ICT sector (8.4% p.a.), and professional services sectors (6.4% p.a.), respectively.\u00a0 As services exports from professional services\/real estate sector firms are predominantly exported to non-EU countries whereas services from the ICT and manufacturing sectors are often directed to the EU, recent favourable growth rates seem to be driven by a mix of EU and non-EU markets.<\/p>\n<p>Going more detailed and adding a geographic dimension to sectoral growth rates, it is apparent that the export growth experience is actually fairly diverse across UK regions and sectors (Table\u00a03). Still, the aforementioned pattern that some sectors are growing more than others is quite discernible from the way in which dark cells\u2014denoting high growth rates\u2014align with sectors.\u00a0 As explained before, some of these sectors such as Administrative support services are less important for the bigger picture than the manufacturing or ICT sectors.\u00a0 Table\u00a03 reveals many intriguing developments; for instance, the mixed growth performance of financial services is clearly a result of shrinking exports from London, from which most financial services originate, while Scotland defies that national trend by exhibiting nearly 10% growth in financial services exports every year, and the same is true to a lesser extent for the East of England.<\/p>\n<p style=\"text-align: center\"><span style=\"color: #008080\">Table 3: Average annual growth rate of services exports 2011-15, by region and sector<\/span><\/p>\n<div id=\"attachment_1679\" style=\"width: 1020px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-3-bp14.jpg\"><img aria-describedby=\"caption-attachment-1679\" loading=\"lazy\" class=\"wp-image-1679 size-full\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-3-bp14.jpg\" alt=\"\" width=\"1010\" height=\"360\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-3-bp14.jpg 1010w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-3-bp14-300x107.jpg 300w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Table-3-bp14-768x274.jpg 768w\" sizes=\"(max-width: 1010px) 100vw, 1010px\" \/><\/a><p id=\"caption-attachment-1679\" class=\"wp-caption-text\">Sources: Office for National Statistics (2017b); and authors\u2019 calculations. Notes: Sector columns comprise functional categories that combine SIC categories from ITIS as well as commodity categories from the Balance of Payments (Transportation, Finance, and Insurance &amp; Pension, respectively) and from the International Passenger Survey (Travel).<\/p><\/div>\n<p>The extent to which regions are successfully participating in services exports is partly down to their specialisation in particular services sectors. Figure\u00a06 shows the distribution of average annual export growth rates across UK regions.\u00a0 At least over recent years, regions in the North such as Scotland and the North West have experienced the most buoyant export growth with rates slightly exceeding 8% and 6% p.a. respectively.<\/p>\n<p>Part of the \u2018Northern success story\u2019 is, for instance, Scotland\u2019s considerable growth rates in sectors such as professional services and the ICT sector. Firms located in the North West, in turn, have lodged average services export growth of 20% p.a. out of the manufacturing and administrative support sectors.\u00a0 Indeed, services exports from manufacturing sector firms exhibit massive growth across Northern regions including North East and West, Yorkshire, and East and West Midlands.\u00a0 One might surmise that this could reflect the co-location of manufacturing service providers next to the UK automotive industry in these areas.<\/p>\n<p>Because ONS data on regional services exports end in 2015, the relatively low export growth rate for the South West shown in Figure\u00a06 does not reflect the most recent development that the South West became the third largest English region (after London and South East) in terms of businesses participating in international trade. Most notably, this was due to a large rise in the number of businesses trading services from that region rather than goods. [19]<\/p>\n<p style=\"text-align: center\"><span style=\"color: #008080\">Figure 6: Average annual growth rate of services exports 2011-15, by region, quartile brackets<\/span><\/p>\n<div id=\"attachment_1688\" style=\"width: 187px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure6_notitlebp14.png\"><img aria-describedby=\"caption-attachment-1688\" loading=\"lazy\" class=\"wp-image-1688 size-medium\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure6_notitlebp14-177x300.png\" alt=\"\" width=\"177\" height=\"300\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure6_notitlebp14-177x300.png 177w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure6_notitlebp14-768x1302.png 768w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure6_notitlebp14-604x1024.png 604w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/Figure6_notitlebp14.png 1200w\" sizes=\"(max-width: 177px) 100vw, 177px\" \/><\/a><p id=\"caption-attachment-1688\" class=\"wp-caption-text\">Sources: Office for National Statistics (2017b); and authors\u2019 calculations. Notes: Underpinning total services export figures comprise functional categories that combine SIC categories from ITIS as well as commodity categories from the Balance of Payments (Transportation, Finance, and Insurance &amp; Pension, respectively) and from the International Passenger Survey (Travel).<\/p><\/div>\n<p><a name=\"conclusionbp14\"><\/a><\/p>\n<h2>Conclusion<\/h2>\n<p>The discussion around Brexit\u2019s potential impact tends to focus on goods trade issues, even though international trade in services is more important for the UK economy than for most other countries. Thus the aim of this Briefing Paper is to present facts about the regional structure and orientation of UK services exports, so as to shed light on how Brexit may have different ramifications for services sectors and for individual UK nations and regions.<\/p>\n<p>We have described the rich pattern of services exports across UK regions in terms of location, destination, and sectoral specialisation. Services exports are highly skewed in a geographical sense, meaning that most services exports originate from two regions, namely London and the South East.\u00a0 The North West, East of England and Scotland, respectively, each contribute similar values to services exports, but between them only about as much as the runner-up region South East.\u00a0 At the same time, the exposure of regions to EU countries as destination markets for services does not follow the aforementioned size pattern.\u00a0 Rather, the regions whose overall trade is most focussed on EU countries, relative to non-EU countries, are the North East and the West Midlands, respectively, followed by the South East.<\/p>\n<p>In terms of sectors, we find that services exports by firms from the wholesale\/motor trade sector are those predominantly oriented towards the EU. Conversely, services exports by firms from the diverse professional services\/real estate sector are mostly geared towards non-EU destinations.\u00a0 The orientation of services exports from manufacturing sector firms is geographically more diverse, with regions in the North exporting more to the EU than Southern regions in this sector.<\/p>\n<p>Cross-border trade in services is but one of several ways of exchanging services internationally. We provide a ballpark estimate of the value of domestic services that are exported through manufacturing exports as inputs embodied therein.\u00a0 This turns out to add over \u00a350 billion per year to UK services exports, i.e. comparable in magnitude to the total of financial services exports.\u00a0 In 2015, the value of these indirect services exports ranges from \u00a32.5bn for the North East to \u00a38.2bn for the South East.\u00a0 Thus it is a non-negligible share of total services exports for most regions.\u00a0 The share of such indirect services exports that is directed towards the EU ranges from 40-60%, with Wales and the North East being the regions most focussed on EU destinations.\u00a0 The nations of Scotland and Wales as well as the North East region have recently focused more on EU markets and might, therefore, be more exposed to Brexit-related changes in market access conditions for manufactures to the EU Single Market.<\/p>\n<p>Over the 2011-15 period, aggregate growth of cross-border services export was essentially driven by firms from the manufacturing, ICT, and professional services sectors, respectively. As the latter are predominantly exported to non-EU countries whereas services from the ICT and manufacturing sectors are often directed to the EU, recent favourable growth rates seem to be driven by a mix of EU and non-EU markets.\u00a0 At the same time, the North East and the West Midlands are two regions that send nearly half of their services exports to the EU and thus their service sectors emerge as the most exposed to Brexit related changes in market access conditions.<\/p>\n<p>Services differ widely in how and under what conditions they can be traded internationally. For instance, cross-border trade of certain financial services may directly rely on passporting rights, or perhaps on the establishment of a bank branch abroad, and may further be affected by regulation safeguarding the privacy of personal financial data.\u00a0 Exiting the Single Market for services will have starker ramifications for more regulation-intensive services such as financial, legal or broadcasting services.\u00a0 Understanding how alternative Brexit scenarios may affect services export prospects of individual UK nations and regions requires a detailed analysis showing which geographic areas specialise in what kinds of services for which destination markets.\u00a0 This is what this Briefing Paper aims at providing.\u00a0 It may thus be helpful for thinking about negotiating priorities and levels of ambition in the realm of services trade for the forthcoming UK-EU negotiations.<br \/>\n<a name=\"furtherbp14\"><\/a><\/p>\n<h2>Further Information<\/h2>\n<p>This document was written by Ingo Borchert and Nicol\u00f2 Tamberi. Without implicating the following persons or the institutions they represent, the authors would like to thank Alan Winters as well as John Cooke, Michael Gasiorek, Peter Holmes and Jim Rollo for helpful comments and suggestions.\u00a0 Any remaining errors are the authors\u2019.<\/p>\n<p>The authors assert their moral right to be identified as the authors of this publication. Readers are encouraged to reproduce material from UKTPO for their own publications, as long as they are not being sold commercially. As copyright holder, UKTPO requests due acknowledgement. For online use, we ask readers to link to the original resource on the UKTPO website.<br \/>\n<a name=\"principalbp14\"><\/a><\/p>\n<h2>Principal Data Sources<\/h2>\n<p>Office for National Statistics (2017a) \u201cEstimating the value of service exports by destination from different parts of Great Britain: 2015\u201d, data and article. <a href=\"https:\/\/www.ons.gov.uk\/businessindustryandtrade\/internationaltrade\/articles\/estimatingthevalueofserviceexportsabroadfromdifferentpartsoftheuk\/2015\">https:\/\/www.ons.gov.uk\/businessindustryandtrade\/internationaltrade\/articles\/estimatingthevalueofserviceexportsabroadfromdifferentpartsoftheuk\/2015<\/a><\/p>\n<p>Office for National Statistics (2017b) \u201cEstimating the value of service exports abroad from different parts of the UK: 2011 to 2015\u201d, data and article. <a href=\"https:\/\/www.ons.gov.uk\/businessindustryandtrade\/internationaltrade\/articles\/estimatingthevalueofserviceexportsabroadfromdifferentpartsoftheuk\/2011to2015\">https:\/\/www.ons.gov.uk\/businessindustryandtrade\/internationaltrade\/articles\/estimatingthevalueofserviceexportsabroadfromdifferentpartsoftheuk\/2011to2015<\/a><\/p>\n<p>Office for National Statistics (2017c) \u201cInternational Trade in Services survey (ITIS)\u201d, 2015 (published 31 Jan 2017).<\/p>\n<p>Office for National Statistics (2016) \u201cRegional gross value added (income approach) reference tables: Table 6\u201d, published 15th December 2016.<\/p>\n<p>HM Revenue &amp; Customs (HMRC) \u201cRegional Trade Statistics\u201d, data available at: <a href=\"https:\/\/www.uktradeinfo.com\/Statistics\/RTS\/Pages\/default.aspx\">https:\/\/www.uktradeinfo.com\/Statistics\/RTS\/Pages\/default.aspx<\/a><\/p>\n<p>_____________________________________________________________________________<\/p>\n<h2>Endnotes<\/h2>\n<p>[1] Office for National Statistics: \u201cAnnual Business Survey, Great Britain non-financial business economy: 2016 exporters and importers. Article released 09 November 2017.<\/p>\n<p>[2] The recent publication of detailed regional services export statistics by the Office for National Statistics is a significant and valuable contribution. ONS consider these regional estimates \u201cExperimental Statistics.\u201d Accordingly, the analyses and interpretations in this Briefing Paper are subject to the caveats that come with these data; for further details see ONS (2017a, 2017b).\u00a0 No comparable statistics exist for regional <em>imports<\/em> of services, thus we focus on an in-depth analysis of export flows.<\/p>\n<p>[3] The empirical analyses in this Briefing Paper do not cover Northern Ireland for want of information on regional services exports by sector and destination in 2015.\u00a0 At \u00a32.27 billion, total services exports from Northern Ireland are the smallest of all NUTS-I regions in 2015.\u00a0 Hence, whilst Northern Ireland is politically significant in the Brexit debate, its omission is unlikely to bias the results on services exports in economic terms.<\/p>\n<p>[4] On a national level, the financial services sector makes the biggest contribution to aggregate cross-border services exports. Professional and business services represent the next most significant export category, followed by ICT services and Travel (inbound tourism), respectively.\u00a0 Exports of manufacturing exports are also quantitatively important for the UK.<\/p>\n<p>[5] More detailed information on the concentration of services exports across regions, and its evolution over time, is offered in the online version of this Briefing Paper (Section 6), available from <a href=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/publications\/\">UKTPO\u2019s website<\/a>.<\/p>\n<p>[6] Further information is contained in Annex Figure A.1 in the online version of this Briefing Paper, available from UKTPO\u2019s website.<\/p>\n<p>[7] Differences in \u2018openness\u2019 across regions are partly due to local productivity differences, although by itself this would bias the ratios in Figure\u00a01 downwards.<\/p>\n<p>[8] In 2016, this share has fallen slightly to 37% according to the Pink Book 2017.<\/p>\n<p>[9] The ONS (2017a) estimates of services exports by region and sector are based upon the ITIS survey, which does not cover firms from these four sectors. Further information on functional categories is offered in the online version of this Briefing Paper (Annex 2 on Data Methodology), available from UKTPO\u2019s website.\u00a0 As such, the trade statistics underpinning Figure\u00a02 and Table\u00a02 are not directly comparable to Table\u00a01 figures, which do include these functional categories.<\/p>\n<p>[10] Those regions are, in descending order of EU orientation, the South East, East Midlands, Yorkshire &amp; the Humber, London, East of England, and Wales.<\/p>\n<p>[11] HMRC 2017 Q1 Press Release issued 09 June 2017. See also Matthew Ward, \u201cStatistics on UK-EU trade\u201d House of Commons briefing paper, No. 7851, 17 August 2017.<\/p>\n<p>[12] Mode 1: \u2018cross-border services trade\u2019, Mode 2: \u2018consumption abroad\u2019, Mode 3: \u2018established of commercial presence\u2019, Mode 4: \u2018temporary movement of natural persons as service suppliers.\u2019<\/p>\n<p>[13] Another 15.8% of the gross value of manufacturing exports in 2011 consisted of <em>foreign<\/em> services inputs, which raises the total share of services inputs into manufacturing exports to nearly 40%.\u00a0 However, we abstract from foreign services value added here because changes in services imports do not translate directly into changes for domestic production and employment.\u00a0 That said, services inputs\u2014both domestic and foreign\u2014may play an important role in the efficiency and competitiveness of the manufacturing base.<\/p>\n<p>[14] HMRC regional trade statistics are published in terms of SITC Rev.4 (ie. a <em>goods<\/em> classification), whereas manufacturing sectors in TiVA are provided in ISIC Rev.3 (ie. an <em>industry<\/em> classification).\u00a0 Rendering data from both sources compatible requires multiple concordances, details of which are given in the appendix.\u00a0 Concerns one may have about these conversions are alleviated by the fact that the object of interest is <em>aggregate<\/em> manufacturing only, thus ambiguous concordances at the product\/subsector level are irrelevant.<\/p>\n<p>[15] In addition to the aforementioned data compatibility issues, the derivation of regional mode 5 services export figures requires a number of assumptions. First, the share of services value added in UK manufacturing exports is the same across all regions, across destinations (EU and ROW), and over the period 2011-15.\u00a0 Second, the value of services inputs thus recovered from manufacturing exports of a given region is attributed entirely to that originating region; or put differently, manufacturers purchase services only from within that region.\u00a0 This would, for instance, in practice not be true if specialist legal advice or financing was procured from London by a firm exporting manufactures from the North East.\u00a0 Further details on the construction of mode 5 exports is offered in the online version of this Briefing Paper (<a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/UKTPO-BP-14-Appendix.pdf\">Annex 3<\/a>), available from UKTPO\u2019s website.<\/p>\n<p>[16] There are numerous other linkages between goods and services trade. For instance, the North East and West Midlands are the two regions with the highest relative share of mode 5 exports, and at the same time are those regions with the highest share of cross-border services exports to the EU relative to ROW (Figure\u00a02).\u00a0 Both could potentially reflect value-chain activities by some firms.<\/p>\n<p>[17] Graphs with time series of the four largest mode 5 exporting regions are contained in <a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/01\/UKTPO-BP-14-Appendix.pdf\">Annex Figure A.2<\/a> in the online version of this Briefing Paper, available from UKTPO\u2019s website.<\/p>\n<p>[18] Over the period 2011-2015, the UK trade deficit in goods rose from \u00a395bn to \u00a3119bn whilst the trade surplus in services rose from \u00a370bn to 86bn.<\/p>\n<p>[19] Office for National Statistics: \u201cAnnual Business Survey, Great Britain non-financial business economy: 2016 exporters and importers. Article released 09 November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Briefing Paper 14 11 January 2018 Ingo Borchert and Nicolo Tamberi Key Points Introduction The Spatial Distribution of Services Exports Across the UK Trade Relationship with the EU Trade in Embodied Services Growth of Cross-Border Services Exports over Time Conclusion Further Information Principal Data Sources Key Points This Briefing Paper describes the rich pattern of UK regional services exports. The aim is to provide a \u201cheat map\u201d for understanding better how Brexit might affect the services export prospects of UK regions. Reflecting the general concentration of economic activity in and around London, services exports too are spatially concentrated here, as London and the South East accounted for 62% of all services exports in 2015. There is no denying that, depending on the as yet unspecified Brexit conditions, there will be a substantial impact on services exports in the South. There is more to services exports than financial services out of&#8230; <a class=\"read-more btn btn-default\" href=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/publications\/brexit-and-regional-services-exports-a-heat-map-approach\/\">Read More<\/a><\/p>\n","protected":false},"author":213,"featured_media":0,"parent":364,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":[],"_links":{"self":[{"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/pages\/1475"}],"collection":[{"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/users\/213"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/comments?post=1475"}],"version-history":[{"count":83,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/pages\/1475\/revisions"}],"predecessor-version":[{"id":7153,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/pages\/1475\/revisions\/7153"}],"up":[{"embeddable":true,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/pages\/364"}],"wp:attachment":[{"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/media?parent=1475"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}