Trade in Services and Economic Transformation

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Neil Balchin, Bernard Hoekman, Hope Martin, Maximiliano Mendez-Parra, Phyllis Papadavid, David Primack and Dirk Willem te Velde, November 2016

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While much of the debate on economic transformation centres around transforming agriculture and moving into manufacturing, the potential of services is often left unexplored. A proper understanding of the trade dimension of services lies at the frontier of new analytical work on economic transformation. It is crucially important for policy-makers in low-income countries, many of whom may not regard services, or trade in services, as a prime focus of action on economic transformation. This paper explores how policies both directly and indirectly affecting trade in services can have a major impact in terms of increasing the contribution of services to economic transformation.

It is often assumed that services follow transformation, but as in reality services also enable other sectors, it is important for economies to follow a balanced growth path where services and other sectors grow in tandem. Policy-makers need to update their evidence base on such linkages so they realise how services and other sectors grow together.

What is the role of trade in services in economic transformation and what can be done to improve the contribution? This paper seeks to answer these questions by reviewing what is known about the relationships between trade in services and economic development and identifying areas for further research, quantifying how these relationships work and exploring short case studies where countries have actively promoted exports of services.

Photo credit: Rob Beechey / World Bank

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