XUAN Ye，etc：Domestic Demand Driven and International Competitiveness of Service Industry——A Research of “Home Market Effect”

Abstract：It is of great significance for China's strategic economic transformation to promote service industry relying on domestic market to cultivate international competitiveness.By constructing theoretical model, this paper probes into the service industry's “home market effect”, as well as the forming mechanism of domestic demand promoting the elevation of international competitiveness of service industry, and conducts empirical tests, using the data from 1997 to 2012 in China.Theoretical analysis shows that service industry in the feature of increasing returns to scale and differentiated products also has the “home market effect”, and this effect is more obvious along with the decrease of trade costs.Home demand expansion promotes the service industry's international competitiveness through reducing costs and innovating differentiated product.Empirical tests show that in the short term, domestic demand driven effect shows a significant increase in service's technology content;in the medium and long term, the effect shows the promotion of service industry's international competitiveness.Compared with traditional service industry, the effect of domestic demand-driven policy on promoting competitiveness is more significant in modern service industry.This paper suggests to promoting the international competitiveness based on domestic market.

Key words： Service Industry    Domestic Demand Driven    “Home Market Effect”    International Competitiveness

source:Finance & Trade Economics ,No.3,2015