We focus on MNEs because it is well-known that the majority of global trade is orchestrated by MNEs, often through internal transfers of knowledge and services (Iammarino and McCann, 2013), and we focus on global cities because as we document below much of the international trade and investment in services originates in these cities.
We discuss in particular how global cities and MNEs are connected through changes in GVCs such that high value-added knowledge-based services and activities such as R&D, marketing and financial services tend to agglomerate in a relatively small number of global cities, and these cities, in turn, become both homes and hosts to MNEs. Using ideas developed in the international business and economic geography literatures, we explore the interrelationships among multinational enterprises (MNEs), global value chains (GVCs) and cities. In this post, we examine the nature of trade in services through a different lens. Nevertheless, as we discussed in a previous post, there are still doubts regarding the degree to which this is possible. For example, in a recent report, HSBC and Oxford Economics (HSBC, 2016) documented the potential for expanded trade in services.
The idea that developed economies like the UK and Canada should pursue diversification via trade in services is not new. At the same time, advances in digital technologies have served to expand the potential for trade and FDI in strategic business services including design, development and testing education and training sales and marketing and R&D. Trade in services is different because it involves a range of cross-border transaction including IT services, transportation services, tourism services, local offices providing banking, insurance, and communications services, and the short-run movement of service workers in these industries.
However, it has also been noted that trade in services is more complicated than trade in goods because the former typically involves movements of knowledge, people and capital. Previous contributions ( here and here) focused on trade in goods and services, concluding that distance still matters for trade in goods, but possibly less so for services, and that services, therefore, represent a more promising route to diversification. This post is the third in a series analysing the prospects for trade and foreign direct investment (FDI) diversification, with a particular focus on the UK and Canada in the age of Brexit. Daniel Shapiro, Saul Estrin, Christine Cote, Klaus Meyer, and Jing Li examine the nature of trade in services using ideas developed in the international business and economic geography literature to explore the interrelationships among multinational enterprises, global value chains and cities.
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