The Future Wealth of Nations: World Trade in Services

AuthorPrakash Loungani - Saurabh Mishra - Chris Papageorgiou - Ke Wang
Pages4-7
IMF Research Bulletin
4 4
The Future Wealth of Nations: World Trade in Services
Prakash Loungani, Saurabh Mishra, Chris Papageorgiou, and Ke Wang
The ability to trade serv ices has increased significantly thank s
to technology: serv ice exports now account for almost a quar-
ter of total exports . Service exports have also come to pl ay a
central role in global production net works and value chains. A
new dataset and toolkit do cument these important trends in
the future wealth of nations. Th e rise in services exports i s not
confined to advanced economies ; services exports have grown
ten-fold since 1990. Service s may thus be a game-changer,
offering an oppor tunity to sustain globalization.
In “e Wealth of Nations,” Adam Smith questioned
the social va lue provided by “ lawyers, men of letters of all
kinds, … musicians , opera-singers, etc.” He was expressing
a prejudice against the ser vice sector that holds to this day.
Christina Romer la mented in a n op-ed that there is a “feel-
ing that is it better to produce ‘real th ings’ than services”
(New York Times, Feb. 4, 2012). Meanwhile , services—
which already account for 70 percent of world GDP and 50
percent of employment—are also becoming an impor tant
part of trade. In 2014, serv ice exports accounted for nearly
25 percent of total exports (Figu re 1). Services e xports
have also come to play a central role in globa l production
networks and value chai ns.
While a haircut st ill requires a trip to the loca l barber-
shop, many other services no longer require t he provider to
be close to the customer. Financial ser vices are global and
many consulting ser vices, such as architectura l designs,
can be delivered from any where. e main reason for the
increased tradabi lity of services is the revolution in infor-
mation and communication technologie s. Rapidly declin-
ing telecommunication costs , increasing internet adoption
around the world, and rapid proliferation of broadband
internet services have made a rm’s lengt h delivery of services
possible within a nd across borders.
Since many countries ca n take advantage of these techno-
logical advances , the rise in services exp orts is not conned to
advanced economies. Ser vices exports from developing coun-
tries have grown tenfold since 1990 a nd at twice the rate of
services exp orts from advanced economies; hence, developing
countries’ share has incre ased from 3 percent in 1970 to over
20 percent in 2014 (Figure 2). is increase is not just due to
higher exports of t raditional services, but is al so due to mod-
ern technology-enabled serv ices as well, e.g., business service s
(including R&D and consultanc y), computer and inform ation
services,  nancial services, and i ntellectual property.
As a result of these developments, a nascent literat ure has
begun to chal lenge the long-held tenet that industrialization
has to be the prime engine of g rowth for emerging markets
and low-income countries. is classica l view holds that the
manufactur ing sector promotes broad economic growth (Kal-
dor, 1967) while the services sector is resi stant to improve-
ments in productivity (Baumol, 1967). is arg ument was
based on the assumption t hat the provision of services—such
as restaurant meal s, haircuts or medical checkups—required
face-to-face transac tions. ese services did not lend them-
selves easily to standa rdization and trade—the source of
growth in productiv ity and hence incomes.
Research Summary
Figure 1. Share of Services Exports in Total World
Exports and World GDP
0%
1%
2%
3%
4%
5%
6%
0%
5%
10%
15%
20%
25%
Share of service exports
in total world exports of
goods and services, LEFT
Share of service exports
in world GDP, RIGHT
Sources: BPM6, World Economic Outlook, and authors’ calculations.
7%
2014
1970
1975
1980
1985
1990
1995
2000
2005
2010

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