International Trade in Services and the Evolving Position of Developing Countries

This paper illustrates the main trends in international trade in services during the last two decades of the last century, focusing particularly on developing and transition countries. The Introduction briefly exposes some of the shortcomings and methodological problems affecting statistics on international trade in services, and explains why BOP data, albeit inadequate, are the only source available so far to carry out a comprehensive comparative and historical analysis in this domain. Section 2 describes basic trade trends for each of the 10 services sectors, identifies the major exporters of services among developing and transition countries and analyzes the evolution of their relative position in international trade in services. It 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. Section 3 examines global trade trends for services as a whole. They show 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 prospects. In the Conclusions, a tentative explanation for the aforementioned results is proposed. Most export-oriented services activities in developing countries are concentrated in traditional services sectors. They are also poorly integrated to the rest of the domestic economy. Thus, their potential as engines for growth is relatively weak. The weight of these structural weaknesses was magnified by an economic policy bias. Under conditions of financial stress, many previously inward-oriented developing countries felt compelled to divert resources towards exports as if they were a goal per se, rather than a component of a comprehensive long-term growth-maximizing strategy. In the services sector as well, imports were sacrificed and exports intensely encouraged. As liberalizing reforms aimed at accelerating developing countries' trade and financial integration in the world economy were often carried out in an unbalanced and hasty fashion, their results turned out being less than fully satisfactory.