The Impact of the “Digitalization” of Services

Economists Ejaz Ghani and Arti Grover of the World Bank along with  Homi Kharas  of the Brookings Institution argue that the rise of cheap information technology has provided a real spur for the growth of globally traded services:

Although conventional wisdom has been that labour-intensive manufacturing creates the most jobs in developing countries, recent data suggest otherwise; employment growth has been most rapid in the services sector . . . In developed and developing countries alike, labour is being shed from both agriculture and manufacturing.

In the goods sectors, technologies have matured and developing countries already have a large market share and have achieved significant scale economies. However, modern services appear to be steadily expanding, with catch-up opportunities continuing to rise. As broadband penetration in developing countries continues to grow and improve in speed and quality, it is easy to see greater possibilities for modern service exports from low- and middle-income countries. In fact, technological change in the services sector is now larger than in the goods sector, suggesting that services may be the next escalator for growth in developing countries.

That’s the good news for the developing economies.  But it suggests that, in developed countries, the services sector will come under increasing pressure from overseas competitors, and must protect their position through continual innovation on their own.  You can read the full post here.


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