The Place of Services in the World Economy

This paper emphasizes the key roles that services play domestically and internationally in terms of accounting for rising shares of domestic output and employment as well as cross-border trade and foreign direct investment that provide enhanced export opportunities and lower-cost imports. Services are commonly subject to a variety of regulatory policies, such that liberalization requires both the removal of explicit barriers combined with regulatory reform. There is substantial evidence indicating that services liberalization and regulatory reform may result in increased economic growth and greater efficiency in the use of labor and capital, increased product innovation, and increased consumer welfare. The role of services is put in context by a review of selected economic data on the trade and macroeconomic structure and performance especially of the five Andean economies – Bolivia, Colombia, Ecuador, Peru, and Venezuela. The implications of regulatory reform and services liberalization are analyzed in some depth, after which there is a focus on methods of measurement of international services barriers and quantification of the economic significance of reducing or removing these barriers. The potential economic benefits of services liberalization are illustrated computaticoncludes with a discussion of priorities for multilateral services negotiations.