Exports of Services and Economic Growth in Developing Countries

EXPORTS OF SERVICES AND ECONOMIC GROWTH IN DEVELOPING COUNTRIES Alberto Gabriele, September 2002 Summary This paper illustrates the main trends in international trade in services during the last two decades of the last century, and explores quantitatively the nexus between GDP growth and exports of services, focusing particularly on the role of developing and transition countries. The Introduction briefly exposes some of the shortcomings and methodological problems affecting BOP statistics on international trade in services. The descriptive statistical analysis in Section 2 shows that services exports have been the most dynamic component of world trade and the world market share of developing countries has been on the rise. However, a generalized deceleration in the expansion of world trade in services occurred in the late 1990s. The growth rate of services exports from developing countries slowed down, and their ability to import services also declined, with a negative impact on their development perspectives. A more detailed statistical assessment of the performance of the main exporters in each of the services sub-sectors among developing and transition countries(presented in the Annex) shows that most of them are either large semi-industrialized Asian countries or European transition countries. Yet, there are also cases of other developing countries exhibiting a strong tendency towards specializing in one or few specific services sub-sectors. Statistical analysis in Section 3 shows that, in the long run, services exports do have a positive impact on GDP growth in developing countries. Yet, for developing countries, the services exports/GDP growth nexus is weaker than in the case of developed countries. Moreover, in developing countries, the growth-enhancing impact of exports as a whole appears to have declined in the 1990s, although this decline appears to be due more to the merchandise component of exports rather than to the services component. In the Conclusions, a tentative explanation for the aforementioned results is proposed. Most export-oriented services activities in developing countries are not concentrated in traditional services sectors, tend to be poorly integrated to the rest of the domestic economy, and are y often under the control of foreign economic agents. Thus, their potential as engines for growth is relatively weak. Moreover, many previously inward-oriented developing countries, under conditions of financial duress, diverted resources towards exports as a goal per se, rather than in the framework of a comprehensive long-term growth-maximizing strategy. Such opening-up reforms ended up facing diminishing returns.