Global importance of services
 

The services sector plays an increasingly important role in the global economy and the growth and development of countries.

The wide and deep impact of services on development is affirmed by many studies. Services are becoming crucial in a country's development, including in achieving the Millennium Development Goals, such as poverty reduction and access to basic services, including education, water and health services.

World Bank has pointed to the higher contribution of growth in the services sector to poverty reduction than the contribution of growth in the agriculture or manufacturing sectors (1).

The 2011 World Development Indicators show that the services sector accounted for almost 71% of global GDP in 2010 and is expanding at a quicker rate than the agriculture and the manufacturing sectors. Moreover, trade in services is growing at a pace faster than trade in goods since the 1980s and in 2011, commercial services exports grew 11% to US$ 4.1 trillion(2), 29'82% coming from developing countries and 2.85% from transition economies(3).

Trade in services demonstrated relative resilience in the latest financial and economic crises in terms of lower magnitude of decline, less synchronicity across countries and earlier recovery from the crises. Such resilience has led many countries to incorporate services trade into the post-crisis national trade and growth strategies.

Strengthening the domestic services sector by multiplying its backward and forward linkages with the primary and the secondary sectors as well as its linkage with trade can be an effective component of a comprehensive development strategy.

International trade in services covers tradeables that are intangibles (or trade in intangibles), unlike goods, such as peoples' skills(4). Services trade is carried out through four modes of supply namely cross-border supply, consumption abroad, commercial presence and presence of a natural person. International trade in services through these modes does not physically cross national border and thus is not affected by customs tariffs and other taxes applied to merchandise trade.

Services trade is affected by domestic regulations in force in the sectors concerned in countries. International trade in services is thus sensitive to behind the border, national regulations that affect the supply of services.

For developing countries and least developed countries (LDCs), service trade is the new frontier for enhancing their participation in international trade and, in turn, realizing development gains. However, positively integrating developing countries, especially LDCs, and Land-Locked Developing Countries (LLDC) into the global services economy and increasing their participation in services trade, particularly in modes and sectors of export interest to them, remains a major development challenge.

It is therefore imperative to increase the private sector and public advocacy and awareness, to mobilize policy attention and resources to boost the sector's contribution to growth and development in developing countries and LDCs.

Finally, given the multifaceted contribution of services to national economy and trade, it is critically important to design and implement a services-driven development strategy within a coherent and comprehensive policy framework ensuring linkages with other policy areas and overall national development objectives.

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(1) World Bank presentation, "Role of Services in Economic Development"; Geneva, July 2012 (Data source: World Bank, 2010)
(2) WTO World Trade Report 2012; Data from WTO and UNCTAD Secretariats for commercial services.
(3) Source: UNCTAD Handbook of Statistics 2012
(3) Services sectors defined by the WTO cover business services, communication services, construction and related engineering services, distribution services, education services, environmental services, financial services, health related and social services, tourism and travel related services, recreational, cultural and sporting services, transport services and others.