This paper investigates the share of direct and indirect services trade in Japanese trade between 1985 and 1995, using data from Japanese input-output tables. The empirical analysis reveals that the share of R&D services in total services trade has been much higher throughout the period than the share of other services. The contribution of school education services gradually increased from 1985 to 1995, while that of financial services declined. These results indicate that Japan increasingly exported technology-intensive products during the period, moving away from goods intensive in financial services to those intensive in educational services. After the bubble economy burst, exports of financial services declined and Japanese banking and insurance companies rapidly withdrew from overseas markets. Financial firms in Japan lack international competitiveness. Although structural reforms have been under way in some services sectors, the analysis in this paper suggests that greater reform is needed, especially in the financial sector.
