Trade in services and economic transformation

Abstract

This paper examines the role of trade in services by discussing how the trade aspects of services help promote economic transformation. A sceptical view often exists that services follow rather than lead transformation. However, we argue it is important for economies to follow a balanced growth path because of the explicit and implicit linkages between the various sectors. We suggest policy-makers need to update their evidence base on the linkages between sectors and consider more carefully what specific actions deserve priority. Even when promoting manufacturing exports is the top priority, the answer can actually be found in trade in services policy. This paper provides information on how such linkages might work, updating the evidence base. The paper addresses two main questions: What is the role of trade in services in economic transformation and what can be done to improve the contribution? It tackles these using mixed methods. We review what we know about the relationships between trade in services and economic development and identify areas in need for further research (Section 2). The statistical analyses at micro and macro levels in Sections 3 and 4 provide new insights by quantifying how these relationships work, directly through trade in services or indirectly, by services production being embodied in goods trade. Section 5 selects five services sectors and undertakes brief case studies. It focuses on how the trade aspect matters for transformation and on how selected countries have promoted more exports of services, distinguishing between trade policy and other factors. In exploring whether and how trade in services and other policy can have a major impact in raising the contribution of services for economic transformation, we summarise the main findings into three categories: 1) improved knowledge.