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Trends in Services. Excerpts from "Services: Trends, Consequences and the Effects of a New WTO Round" by Julian Arkell
Aug 12, 2001

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  • Today economic conditions for the whole world, let alone for the transition economies, are very different from those of even twenty years ago. That was before world-wide foreign direct investment had become such a major feature, before international trade in services had grown faster, before the globalisation trend had gathered such pace, before the Internet existed - even before the end of exchange controls that restricted capital outflows in some OECD countries. In the EC, only in 1990 did the Capital Movements Directive remove restrictions as part of the Single Market liberalisation drive.

    The convergence of computing information processing, telecoms, broadcasting and the media resulting from the digitisation of Information Technology, is bringing governments and societies closer together - and ‘democratising’ many key aspects of life. Furthermore, as economies advance, services production as a proportion of output is increasing and the knowledge and information content of services activity and its significance grows.

    Countries need improved services infrastructure to integrate with the global economy and benefit from the gains from trade. For most countries much of the necessary investment has to come from abroad, so many of them have opted for unilateral liberalisation. In addition many services are best supplied locally within the market, often face to face. Thus not only have services exports been growing faster than merchandise exports for over a decade, but also FDI flows into services for some time has outpaced that into manufacturing, so that the total stock of FDI in services globally by the end of 1999 exceeded that in manufacturing.

    Services as a proportion of GDP is rising in most countries, with the largest shares in the countries with the highest incomes, the best services infrastructures and human capital. Whereas services used to be on average lower paid and less productive, resulting in their share of employment being higher than their contribution to GDP, this gap is lessening. In Hong Kong it has been reversed, so that services account for 85 % of GDP from only 79 % of employment.

    This is due not only to the pattern of increased externalisation of routine services by manufacturers to specialist services suppliers, but also, more importantly to the development of new high-value added business services. For manufacturing and services alike, concentration on core skills and outsourcing are the opposite sides of the same coin, and have brought closer inter-dependence.

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