Trade Reform in Services: Structural Change and Production Networks

IMF Working Papers, March 28, 2025

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Multi-country multi-sector quantitative trade model with input-output linkages.
Focus on services trade reforms and their economy-wide effects through production networks and consumption patterns.

Welfare gains from substantial services trade liberalization are large, around 3 percent on average.
Welfare gains are larger by 0.7 percentage points in a hypothetical scenario where EMDEs’ consumption patterns have converged to AEs.
Welfare gains are larger by 5.7 percentage points when EMDEs’ production networks have converged to AEs.
Both EMDEs and AEs gain from EMDEs reducing services barriers to the level of AEs.
Services-intensive AEs with strong supply linkages to EMDEs benefit the most.

Baseline substantial services trade liberalization: welfare gain ~3 percent on average.
Consumption-convergence scenario: additional gain of 0.7 percentage points relative to baseline.
Production-network-convergence scenario: additional gain of 5.7 percentage points relative to baseline.
EMDE liberalization to AE barrier levels yields cross-region gains for both EMDEs and AEs.

Increasing gains from services trade are associated with EMDEs’ continued development and convergence toward AE consumption patterns and production networks.
Findings call for injecting further ambition into multilateral negotiations on services trade reforms to capture rising benefits as EMDEs develop.
Prioritize reforms that reduce services barriers in EMDEs, given mutual gains and amplified benefits when production networks converge.

Source: Trade Reform in Services: Structural Change and Production Networks, IMF Working Papers 2025, 061.