Is the Globalization of Services Beneficial for Developing Countries?

Topics: International trade, World Trade Organization, Globalization Pages: 22 (5997 words) Published: May 3, 2013
“Topics in Economic Globalization”

Is the globalization of services beneficial for developing countries?

Basma Abdelaziz@

University of Göttingen Faculty of Economic Sciences

International Trade in Services is regarded as the new phase of globalization, which has been growing for more than a decade. Developing Countries particularly in Asia have become the largest producers of services for industrial countries. They also specialized in many professional services such as back office services, customer care, call-centers and also research services. Developing countries didn´t only take part in these services, but they also proved to be successful in offering them through the comparative advantages they have. So, the old idea that developing countries won´t be able to compete with developed countries in liberalized service trade proved to be a mistake. Developing countries are now competitive, they are playing an important role in the world service trade and they bring very high growth rates to foreign investors.

Primo Braga, C. A. ; March 1996 ; “The Impact of the Internationalization of Services on Developing Countries”.

Table of Contents:
I. Introduction: II. Defining Services
Definition Classification of Services Trade in Services The GATS Classification of Services

III. Important Factors in Service Trade IV. Barriers in Service Trade Non-Tariff Barriers in Service Trade

V. Impacts of globalization of services on developing countries Impact on performance Impact on growth Impact on foreign trade Impact on FDI

VI. Concluding Remarks Appendix
Figure 1 : Openness in developing countries: Figure 2: WTO Members share in world commercial services trade Chart 1: Synthetic view of modes of supply Figure 3: Trade restrictiveness index in the professional service sector Figure 4: Trade restrictiveness index in the banking service sector Table 2: FDI outflows from some major developing countries Figure 5: Growth of Indian software revenues, 1984- 2000 Figure 6: Trade restrictiveness Index in the telecommunications service sector Table 3: Sectoral Growth Rates in India Table 4: Foreign Trade in USD

Table 1: Types of entrants and their share in revenues and employment (1990-2000)


I. Introduction:
Whether liberalization of services is beneficial for developing countries or not is a question which answer can only be found through case studies on a certain country and not just theoretically. Developing countries differ in the way they react on the globalization process and the internationalization of products and services. There are a number of factors that make a certain developing country interested in dealing with other countries and a number of barriers that may not allow it to go into business. Generally speaking, any developing country should try it´s best to gain a place in the international trade of services in order to improve its GDP, cut the unemployment rate and improve the performance of its employees. But experience proved that there should be some historical facts in this country which make a solid ground for the set up of the business and the absorption of new foreign ideas; e.g. India. Developing countries in Africa and the Middle-East didn’t take much part in the liberalization process of services, whereas countries such as China and India are considered to be key players in the service industry (Figure 1: Openness in developing countries). On the other hand there are countries such as the Islamic Republic of Iran, Libya, Algeria and Russia which are in need of the trade in services, but they remain observers of the WTO and don´t participate in any of the WTO agreements. (See figure: WTO Members share in world commercial services trade) India is considered as the world leader in services as it worked on both the manufacturing and the non-manufacturing services; on the other hand China focused more on the...
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