Aided by technology, services exports form new avenues of growth

IMF paper says growth in services exports is a global win-win

Boosted by rapid advances in technology, services exports—accounting for nearly one fourth of total exports—now play a central role in the global economy opening new avenues of growth for developing economies.

An International Monetary Fund paper says services, which already account for 50 percent of world income and 70 percent of employment, are also becoming an important part of international trade.

Crucially for the services sector, quickly declining telecommunication costs, increasing internet adoption around the world, and proliferation of broadband internet services have made it possible to deliver services across long distances.

“While a haircut still requires a trip to the local barbershop, many other services, such as insurance or medical diagnoses, no longer require the provider to be close to the customer.”

In a paper authors Chris Pagageorgiou, Ke Wang, Prakash Loungani and Saurabh Mishra, track this development with a rich detailed dataset on global trade in services.

“We make the case that such virtual trade in services are not only catching up with exports of goods in many countries, but it can offer opportunities for new sources of growth, that could help raise productivity and jobs, especially in emerging and developing economies.”

Explaining their research, the authors wrote in an IMF blog that since many countries can take advantage of these technological advances, the rise in services exports is not confined to advanced economies.

Services exports from developing countries have grown tenfold since 1990, and at twice the rate of services exports from advanced economies; hence, developing countries’ share has increased from 3 percent in 1970 to almost 20 percent in 2014. This increase is not just due to higher exports of traditional services, such as travel and transport, but is also due to modern technology-enabled services as well, such as business services (including research and development, and consultancy), computer and information services, financial services, and intellectual property.

Moreover, they note, technology allows for services to be increasingly unbundled: a single service activity can now be fragmented into tasks that are done at different geographic locations, such as business process outsourcing and online banking services. As with goods, services productivity can rise because of specialization (a finer division of labor) and scale (falling unit costs of production).

The paper introduces a new dataset on global trade in services for 192 countries from 1970 to 2014, with the information coming from the IMF’s Balance of Payments Statistics database to track developments in 66 services exports subsectors.

The researchers document the global trends in services exports and how countries differ on various dimensions of services exports.

The paper reveals that at the global level, computer and information services and financial services have emerged as two of the most important sectors in the services exports basket. In 2014, world exports of computer and information services reached $300 billion, 10 percent of the total. Similarly, exports of financial services have grown rapidly, and have bounced back since the Global Recession to reach almost $350 billion in 2014.

The United States has remained the top services exporter, though its importance has declined significantly, the authors find.

China has also become an important services exporter (ranked fifth in 2014). India  is also now one of the top 10 countries, with its share of services exports tripling to over 3 percent of world service exports during the period 2000–13. Thailand, Brazil, Indonesia, and Egypt are in the top 30 and moving up rapidly.

The researchers say that dataset suggests that “export of services may be a game-changer, offering an opportunity to sustain global economic integration.”

“For advanced economies, trade in very high-tech services could help them retain some global competitive edge. At the same time, the growing tradability of services can aid the diversification strategy of resource-rich countries and low-income countries. And for many countries, services may offer a pathway to inclusive growth, for instance by offering work opportunities for women,” they conclude.

FEATURED IMAGE on the top shows a computer and cell phone . Photos credited respectively to Coolcaesar and HLundgaard  via Wikimedia Commons

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OpinionSocial MediaTechnology

Augustine Anthony is a contributor to Vews and News magazine
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