Sebastián Sáez

Senior Trade Economist

INTERNATIONAL TRADE DEPARTMENT

WORLD BANK

Despite enormous challenges many developing countries are service exporters

Besides traditional activities such as tourism; health, information technology and communication services are among the most successful stories

How did developing countries succeed in increasing key services exports?

This book reviews the literature, conducts some econometric exercises, and

Examines the case of: Brazil, Chile, India, Kenya, Malaysia, and the Philippines.

Because it shows that developing countries can reap the benefits that services exports opportunities are opening.

Because the Philippine’s experience also shows that services are a viable option for export diversification.

-50

0

50

100

150

200

1999 200020012002 200320042005 20062007 2008 2009

Goods Services

Services exports are growing faster than goods (%, growth compared to 1999, 1999=0)

Source: Soonhwa Yi 2011.

Performance critically depends on human capital, the quality of telecom network, and institutions for cross-border services

Success in manufacturing does not seem to be a pre-condition for success in services

Importance of factors that are particularly relevant to services

Importance of complementarities among services and among “modes” of supply

Cost and quality of services is a major determinant of how much countries can benefit from globalization

Firms need efficient and reliable services to compete in the world economy

Effectively integrating services markets is complex because it involves regulatory reform and cooperation wide

Source: World Bank, World Development Indicators

19%

27%

15%

17%

19%

21%

23%

25%

27%

29%

0

200

400

600

800

1000

1200

1400

1600

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Goods Other Commercial Services Share Services/Goods

1980=100

Source: World Bank, World Development Indicators

31.6

44.9

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Transportation Services

Travel Services

Modern Services

Share of Modern Services/Goods Exports

0%

5%

10%

15%

20%

25%

30%

35%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

South Asia

Developing East Asia The

Philippines

•Infrastructure

•Entrepreneurial and human skills

•Institutions and

•Endowments

Fundamentals

• Policies affecting trade, investment,

and labor mobility in servicesDomestic

Policies

• Special Economic Zones

• Incentives in general

• Export promotion policies

Targeted

policies

A country’s exports of services depend on

relative endowments,

infrastructure, and

institutions

that matter for the service sector

For instance, services traded cross border, rely on telecommunications infrastructure and are sensitive to institutions that influence contract enforcement.

Biased towards exports of goods

CHILE SERVICE PERFORMANCE WORLD PERFORMANCE

37%

55%60%

28%

21%17%

35%25% 24%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1995 2000 2008

Transportation Travel Other commercial services

26% 23% 24%

35%32%

25%

40%45%

51%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1995 2000 2008

Transportation Travel Other commercial services

Inward FDI may help initiate and even sustain services export

In India, multinational firms were among the first to recognize the scope of BPO

In the case of the Philippines, of total equity investment in the BPO industry, about 93 percent represented foreign equity participation

In Malaysia, limitations on equity ownership have limited the FDI inflow, which consequently might have retarded the growth of the services sector (except for Islamic Banking and education services)

Cross-border services exports may also be linked to outward FDI

For instance, Chile has invested heavily in Latin American countries, these investments have promoted cross-border exports of services of wide range of professional services, logistics, human resources, marketing, and ITC-related services.

Likewise in the case of Brazil, first construction firms, then banks, and then ICT companies

In Malaysia, financial services, telecom and utilities are the main sub-sectors in services that are investing abroad

Indian companies are also reaching out through FDI

Means exports strategies are more complex

There are complementarities among modes of supply: inward migration policies promotes services exports

For instance, in order to promote tourism or education services,

To address But

Key infrastructure and regulatory constraints,

Weaknesses in the local business environment ….

…and provide tax incentives

Egypt, India, Malaysia, and the Philippines

But Brazil and Chile as well

It is hard to establish a causal link

There are examples of targeted policies that did not work as well (the Philippines and Malaysia)

Targeted policies pose risks and must be carefully designed

India case

The Philippines

Cooperation by firms through an industry association can in some cases favorably influence policy at home and its image abroad.

Services are an alternative to trade diversification

Success seems to be unrelated to performance in goods

Success exporting goods seems not to ensure success in services

Importance of complementarities

Jury is still out on other policies