Uncovering the path to services jobs

Across the world, services account for more jobs and a larger share of GDP than manufacturing. Services jobs tend to be better-paid than manufacturing or agricultural roles and demand higher levels of skill. Yet developing countries are only beginning to take advantage of this opportunity. For the richest countries, services represent almost 60 percent of jobs tied to exports, while the number is only 20 percent for the poorest countries.

There is a path to accessing these services trade possibilities. In Sub-Saharan Africa, services accounted for 14 percent of jobs in exports in 2000, but the share doubled within less than two decades. There are really two ways for developing countries to leverage services trade for jobs: they can import more efficient upstream services, allowing for greater productivity; or they can directly export services. The challenge is to identify the most impactful policies to attain these goals.

Newly released data from the World Bank and World Trade Organization (WTO) provides a much more granular view of what can be done and makes it significantly easier to identify impactful services trade policies. In general, services trade and the policies that affect it are significantly more difficult to measure than goods trade equivalents. International shipments of goods pass through customs and traders can observe the tariffs or quotas enforced there. For trade such as transport, tourism, call center work, or financial services, there is no such checkpoint. And in lieu of a readily-quantifiable tariff, trade restrictions are embedded in  domestic laws and regulations, which in most cases, pursue legitimate public policy objectives. Thus, in each country, identification of trade in services barriers entails a detailed sector by sector analysis of laws and regulations. This is precisely the task that the World Bank and the WTO have undertaken.

In a previous 2020 analysis, researchers analyzed services restrictions for selected prominent sectors in 68 economies. They identified the key restrictions affecting services trade in each and quantified the severity of each measure. These ratings were then combined into Services Trade Restrictions Indices (STRI). Once the severity of services trade restrictions is identified and measured, it becomes possible to weight the potential welfare gains of reducing them (in terms of jobs, investment, and GDP and income growth) and thus pursue targeted reforms.

The new research substantially improves upon the coverage and methodology of the earlier work. It expands the number of included countries to more than 134, with coverage now extending through all of Africa (except Eritrea), for example. Whereas the previous work had included the communications, financial, and transport sectors, the new work adds computer services, construction, health, and tourism, along with previously uncovered sub-sectors.

The detail allows for comparisons across income groups. Further, Africa stood out among regions for the heterogeneity of services restrictiveness across its countries. While the median level of restrictiveness in a given sector was often similar to the levels in other regions, there were wide-ranging disparities around that median.  

There is some evidence in the data that international agreements can affect both the level and spread of services restrictiveness. The Western African Economic and Monetary Union (WAEMU) has policies on regional banking regulation, for example, as well as initiatives on professional services such as accounting, auditing, and legal. That may explain the lower and more common levels of restrictiveness across WAEMU member countries in some sectors. There was similar suggestive evidence of harmonization for the European Union, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the East African Community (EAC). In contrast, the Regional Comprehensive Economic Partnership (RCEP) featured relatively large dispersion of restrictiveness among its member countries.

The possibilities for using new policy measures and capacity building tools to help African and other developing economies take better advantage of services trade possibilities will be the subject of a global conference in Geneva December 3-4, jointly sponsored by the World Bank and the WTO.

The progress that developing countries have made to date on services liberalization is very encouraging. The World Bank will continue to support countries leveraging these possibilities for job creation.