Developing countries have benefited hugely from the exports of services over the past 15 years and will now benefit further as export opportunities widen due to fewer restrictions, technology diffusion, and proliferation of MNCs from developing countries.
The advent of industrial robots, the increasing frequency of natural disasters, and changing geopolitical scenarios has placed the spotlight on the reconfiguration of global value chains through reshoring, nearshoring, and friend-shoring. This has raised concerns about the prospects of export-led manufacturing growth—that typically benefited a substantial part of the economy’s workforce through opportunities for scale economies, knowledge spillovers, and increased competition—in hitherto less industrialized countries. Conventional wisdom was pessimistic about export-led growth in the services sector that traditionally relied more on physical proximity between the service-provider and consumer.
But the world has changed. And so have the prospects for services trade, as illustrated in the recent book, At Your Service? The Promise of Services-Led Development. Cheaper travel has enhanced the movement of people and digital electronic content has made services transferable over greater distances. This blog uses novel data on trade in services and trade in employment to show how developing economies have benefited from services exports over the past 15 years. This is an engine of growth that is often ignored by economists and policymakers.
Developing Economies Have Benefited from the Growth of Services Exports
Globally, services exports more than doubled between 2005 and 2019, while goods exports increased by around 80 percent (figure 1a). Developing economies, particularly middle-income countries, have benefited from this acceleration in services trade. Services exports from middle-income countries increased three-fold between 2005 and 2019, compared with a two-fold increase for high-income countries. The services export performance of low-income countries—after an initial period of fast growth between 2005 and 2010—was similar to high-income countries (figure 1b). Large developing economies, such as China, India, and Thailand, expanded their global market share in services exports between 2005 and 2019 and were among the top 25 exporters of services in the world by 2019.
These Benefits Increasingly Draw on Services that are Offshored
Several developing economies use tourism-related accommodation, food, and transportation services to help diversify their exports away from volatile primary sectors. And while exports of travel-related services are the largest in terms of value, exports of other services have grown discernibly faster over the past 15 years, thereby creating new opportunities. Exports of telecommunications, computer, and information services quadrupled between 2005 and 2019, while those of other business services, such as legal, accounting, consulting, and engineering services more than doubled.
About one-fourth of the global growth in the export of these services over the past 15 years was accounted for by developing economies (figure 2a). This growth has enabled numerous developing economies to diversify their export baskets. For example, ICT, finance, and other business services—which are all typically offshored and delivered remotely— accounted for more than 20 percent of the total exports of goods and services in Lebanon, Costa Rica, the Philippines, Ghana, and India (figure 2b).
The Contribution of Services Exports to Job Creation is Growing
Meanwhile, traditional engines of job creation, such as labor-intensive manufacturing industries, have been shrinking in recent years. For instance, jobs supported by exports of textiles, apparel, and footwear have declined by over 20 million between 2005 and 2018 across major developing economies. Exports of machinery and transport equipment created around 2.2 million jobs each during the same period (figure 3a). Services exports, on the other hand, have been the driver of job creation during the past 15 years. Across major developing economies, exports related to distribution services, as well as ICT and business services, have each created around 2.7 million new jobs (figure 3b). Worldwide, services exports have created 16 million new jobs, while the number of jobs supported by goods exports declined by 31 million.
Clearly, although the value of trade in goods is still considerably larger than trade in services, the trajectory has changed decisively in favor of exports of ICT and business services. Furthermore, export opportunities are only likely to increase as a growing number of deep trade agreements are reducing restrictions on services trade, digital platforms are making services more tradable, and an expanding list of MNCs from developing countries are exploiting export opportunities through outward foreign direct investment, which is the most dominant mode of services trade but not covered in the balance of payments statistics reported here. The promise of export-led services growth is indeed real.
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