Credit: A shop window in Stockholm, Sweden: 62 % of jobs in the country are in the services sector (photo: Bob Strong/Reuters/Newscom)

Chart of the Week: High Hurdles for Trade in Services

September 25, 2017

[caption id="attachment_21379" align="alignnone" width="1024"] A shop window in Stockholm, Sweden: 62 % of jobs in the country are in the services sector (photo: Bob Strong/Reuters/Newscom). [/caption]

The service sector accounts for some two-thirds of economic activity, and roughly the same share of jobs around the world. And yet the barriers to trade in services—from banking to online consultations with doctors or engineers—remain high.

The barriers come in the form of policies that restrict a country’s suppliers, both firms and professionals, from selling their services to others. 

In our Chart of the Week from this paper by the IMF, World Trade Organization and World Bank, we give you a global picture of countries’ relative openness to trade in services.  Restrictions on cross-border trade in services and on the entry, ownership, and operations of foreign service providers are common. 

The map below ranks countries’ openness to trade in services: the lighter the shaded country, the more open you are.  The United States, Argentina, and Australia, for example, are among the most open.  India and Iran are among the least open.  China, Russia, Brazil and Canada fall somewhere in between.

Trade in services is about a quarter of total global trade, and the IMF expects that to grow as digital technology enables countries to trade more services.  

When estimates take into account engineering, financial, transport, and other services that go into producing manufactured goods that are later exported, services already account for half of global trade (measured on a value-added basis—“value-added trade”).

This translates into jobs. In Sweden, for example, 29 percent of workers owe their jobs, directly or indirectly, to exports; most of them—62 percent—work in the service sector.

International competition and efficient service sectors are vital to a competitive manufacturing sector. New research finds that full services trade liberalization could boost manufacturing productivity by over 20 percent.

Opening trade in services between countries matters for policymakers because trade has been a strong engine of growth—raising global living standards, reducing poverty and creating millions of new jobs.  But countries can do more to increase growth and productivity, and more open and connected global trade is one way to help accomplish the goal.