The services sector has emerged as the largest segment of most national economies, contributing a growing share to GDP, trade and employment, and becoming a major driving force of the world economy.
The development of services, particularly infrastructure services, contributes significantly to economywide growth, as they constitute the fundamental backbone of any economy, and provide indispensable inputs to other products and services. Efficient and competitive services are catalytic to the expansion of global value chains.
Services trade has emerged as a vibrant component of world trade, several developing countries have gained substantial benefits by exploiting traditional and emerging areas to their comparative advantage, including modern exportable business services and temporary movement of natural persons, while others are yet to acquire the critical capacity to follow suit, relying heavily on traditional, non-tradable and low-productivity services, including the informal economy.
The sector has become the largest provider of existing jobs as manufacturing value chains are outsourced to services suppliers and as the final consumer demand for services increases with the rising income levels.
In this study we examine the link between employment and trade in services by using the WTO-OECD TiVA database on trade in value added statistics. We explore the employment potential of trade in services in comparison with merchandise trade and quantify the employment elasticity of services exports.
Though findings indicate a greater percentage increase in employment in merchandise exports compared with services exports, in absolute terms services has the potential to create a higher number of jobs than the manufacturing sector.
The study is organised in four further sections.
Section 2 summarises salient trends in the services sector with emphasis on developing countries.
Section 3 discusses the driving forces behind the increase of the services sector in output and employment in both developed and developing countries.
Section 4 presents empirical results of the analysis of the link between employment and international trade.
The final section concludes.
