L80 - Industry Studies: Services: GeneralReturn

The paper analyses some aspects of EU-China trade relations. Correlation analysis was applied to quantify the extent of the influence of the foreign trade with China on the overall foreign trade of the five members of the EU that have the largest foreign trade with China. Given the ongoing trade deficits of the EU with China, we decided to apply the Trade Complementarity Index (TCI) to determine the extent of their trade complementarity. Our initial hypothesis that the economies are highly complementary was rejected. We thus decided to apply the TCI to the EU's trade relations with the US. For the US, the TCI confirmed the existence of high trade complementarity. This implies that the EU can strengthen its negotiating power with China by increasing its trade diversification. These conclusions were also supported by our econometric model. A thorough analysis of EU-China trade relations also revealed the growth potential of the trade in services, which is gaining its momentum given the turbulences in global trade. The paper suggests that the EU needs to strengthen its trade relations with its "natural trade partners" instead of concentrating on China. The paper's focus on trade in services is a major contribution as it has so far been neglected in the economic literature.

In its drive to achieve a high-income country status, Malaysia aspires to attract more private investment into the services sector. However, empirical studies on the determinants of foreign direct investment (FDI), especially in the services sector, are sparse, even more so at the industry level. The location theory asserts that FDI inflows into a host country are determined by variables related to resources, infrastructure, market conditions, cost and business environment. This paper investigates the validity of the location theory on Malaysia using a set of panel data for eight services industries from 2003 to 2010. We find that at the industry level, market size, ICT infrastructure and human capital have significantly influenced FDI inflows into the services sector. However, the impact of FDI liberalisation is not significant compared to the dynamic changes of the other variables as progress in FDI liberalization is slow and limited.