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Sebastian Saez's blog

Are Services the Trade of the Future?

Submitted by Sebastian Saez, co-authors: Stephanie Chen on Tue, 12/06/2011 - 12:27


You see trade in services happening all around us. Medical tourism is an increasingly popular option, as patients seek affordable medical treatment in countries such as Costa Rica and Thailand. American students are choosing to earn their undergraduate degrees in Europe and Asia rather than staying close to home. More companies are finding their survival depends on business process outsourcing in developing countries. This growing phenomenon of trade in services has become the most salient characteristic of globalization.

Just a few decades ago, services such as tourism, distribution and communication were considered in the economic literature to be stagnant sectors or of little economic relevance. But now, they are a key determinant of overall countries competitiveness. Many of the costs that determine the competitiveness of domestic industries are associated with the availability and reliability of services. Moreover, trade in services is growing faster than trade in goods. The share of developing countries in exports of world services increased from 11 percent in 1990 to 21 percent in 2008.

In fact, the topic of trade in services has become a subject of recent debate among economists – between those who believe manufacturing will continue to prevail and those who side with services as the future of trade.