In Chapter 4 of the companion volume to this book, Global Dynamics, the model presented asks a lot of the data it is provided with. The magnitude of each country-country-sector flow, , is used to calculate an import propensity, , which is then fixed and determines, to a large extent, the response of the model to an exogenous change in final demand.
In the case of commodity (i.e. physically tradeable goods) flows, this is a natural way to proceed: due to the need to impose customs taxes/tariffs on physical goods entering or leaving a country, the trade in commodities is extremely well recorded.
The same cannot be said of trade in services, which, since it is not done via border controls, is far less accurately recorded and often not recorded at all (Dietzenbacher et al., 2013, p. 86). Indeed, one could argue that it is not clear what trade in services even is, but answering that tricky economics question is outside the scope of this chapter.
Instead, we will content ourselves to follow the World Input-Output Database (WIOD) in assuming that services can be both imported and exported identically to commodities. We will also assume that the UN ServiceTrade database is the best available reflection of the extent to ...