IGNOU : M.COM : IBO 1 : UNIT 18 : Q - 3. Discuss the role of trade in services in economic development.

 

Ans. There was hardly any mention of trade in services in the economic and trade literature during the sixties and early seventies. Trade theorists and policy makers remained besieged with issues relating to trade in manufactures. Services being a 'tertiary' sector and invisible in nature were cut off from the mainstream of discussions at the national and international levels.

The past few years, however, have witnessed a rapid growth of interest in trade in services and its role in economic development. A variety of reasons are responsible for this phenomenon. First, services have emerged as an important source of foreign exchange earnings for both the developed and developing countries. Today cross-border transactions in services alone exceed US$ 1 trillion per annum and these account for about 20 per cent of the total world trade. Exports of services such as tourism, shipping, telecommunications, insurance, banking, software and project exports including technical consultancy and legal management have come to occupy a strategic position in the world markets. Especially in the case of many developing countries, surplus in the invisible account have greatly helped them in mitigating deficit problems in their balance of payments account.

Service sector is also economically important for providing jobs to the millions of people. Because of being relatively more labour intensive, larger services exports mean greater employment opportunities for the workforce. Services already account for about 60 per cent of the employment in the developed countries, and about 27 to 30 per cent and 30 to 50 per .cent in the case of low income and middle income developing countries respectively.

Tourism, hoteling, manpower, software and turnkey project exports and consultancy assignments are of prime interest to the labour abundant developing countries and can greatly help them in solving their unemployment problems.

Besides being the source of foreign exchange and employment generation, service sector plays a catalytic role in the industrialization process and economic development of the countries by way of providing necessary infrastructure and basic inputs for material production in other sectors. It is through the provision of financial services that the industries mobilize resources for procuring raw materials, labour and equipments. Services such as transportation, consultancy and telecommunications enable the firms to set up the production facilities and utilize resources. Technological services help in resource creation.