A farmer in Guatemala rents a tractor using a mobile-phone app developed in Kenya. A patient from Turkey travels to India for eye surgery. A call center operator in the Philippines answers a query from a bank customer in the United States. These are all are examples of international trade in services, a key driver of job creation, economic growth, and poverty reduction in low- and middle-income economies the world over.
Services account for over two-thirds of world GDP – twice the combined shares of agriculture and industry. And services employ more workers and generate more jobs than any other sector – providing millions with the human dignity that comes with being productively employed.
Fueled by advances in information and communications technologies, global exports of commercial services almost tripled from 2005 to 2022, with digitally delivered services increasing almost fourfold. At US$3.82 trillion, digital services exports accounted for 54 percent of the total in 2022. Belying the export pessimism that once characterized discussions of services trade, developing economies account today for a significant and growing share of global services trade.
Trade in digitally delivered services has increased almost fourfold since 2005.
A recent report published jointly by the World Bank and the World Trade Organization (WTO), “Trade in Services for Development,” makes the case for a renewed global push to harness the development promise of services trade and investment. It seeks to address measures that impede trade in services and needlessly inflate costs, promote sound domestic service-sector policies, and advance the elements of an aid for trade roadmap to boost the participation of developing countries in world services trade. The report was the subject of a virtual conference involving the heads of the WTO and World Bank and trade ministers from Jamaica, Rwanda, and the United Kingdom and was the subject of a discussion at the 2023 WTO Public Forum. It advances three strong arguments for expanding trade in services.
First, trade in services offers economic opportunities to women, young workers, and small businesses. In India, for example, women make up 34 percent of information technology workers but only 21 percent of the workforce as a whole. Globally, women represent 59 percent of the labor force in services, a proportion that has risen by one third in two decades. Services supply almost half of jobs for workers under 30 years of age.
Second, services deliver outsize gains for developing countries. Services like logistics, transportation, and information technology help them tap into global value chains, which are important drivers of growth. Research and development, retailing, and financial services are used as inputs into the production of other goods and services, boosting productivity across the economy.
Consider Jamaica, a Caribbean nation of 2.8 million people that is seeking to diversify its economy and reduce its dependence on tourism, which produces 30 percent of its GDP but suffered severe disruptions during the COVID-19 pandemic.
Speaking at the joint publication’s launch, Trade Minister Kamina Johnson Smith recalled how Jamaica was looking to the global digital services sector to position itself as a high-value digital services destination. She described how “digital trade had removed a lot of the barriers while technology lifted a lot of the constrains of size, scale, and distance.”
Third, expanding services trade is key to solving some of the world’s biggest challenges. Environmental services – such as the construction and maintenance of solar panels or smart electricity grids – are essential to reducing greenhouse gas emissions. A changing climate will increasingly prompt countries to shift resources toward activities with smaller environmental or carbon footprints. Many such activities will be in the services sector.
To be sure, the transition to a more service-centric economy isn’t easy. The sheer diversity of services, the multiple ways in which they are traded, the regulatory scrutiny they attract, and the resistance reform efforts often face from entrenched interests – all can prove daunting for developing economies.
That is why the joint World Bank-WTO report stresses the importance of government policies and deepened international cooperation in reaping the full potential of trade in services. The report puts forward an Aid for Trade roadmap for services – a practical package of technical assistance initiatives targeting five key challenges:
- addressing data gaps in services trade;
- supporting the greater participation of developing countries in international policy deliberations and negotiations;
- strengthening regulatory frameworks and institutions;
- promoting diversification, notably that offered by digital trade; and
- tackling key supply-side constraints to increased competitiveness and improving the skills of service workforces.
Mobilizing additional resources, knowledge, and expertise directed to strengthening the services trade capacity of developing and least developed countries will be critical to harnessing the rapid pace of change in services markets, overcoming the challenges associated to domestic reforms, and unlocking the sector’s development promise. The World Bank stands ready to assist with technical advice, analysis, and financing.
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