We study how service trade affects structural transformation and regional patterns of specialization. Using unique Canadian trade data, we document that i) interprovincial and international trade of services have increased between 1992-2017; ii) inter-provincial trade is larger in services compared to goods; iii) structural transformation occurs from goods to tradable services, especially in tradable service-intensive provinces; and iv) there is significant regional specialization in producing goods and services across provinces. Using a spatial model of structural transformation and trade, we quantify the effects of service trade, domestic and international, on the share of the tradable-service sector and regional specialization. Our results indicate that domestic service trade has significantly contributed to the regional specialization. On the other hand, we find that, international service trade is more responsible for the increase of the tradable service share than domestic service trade in the aggregate Canadian economy.