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Role of Services in Economic Development

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Presentation on theme: "Role of Services in Economic Development"— Presentation transcript:

1 Role of Services in Economic Development
Geneva, July 2012

2 Coordinated regulatory reform and liberalization of services
Main points Services and trade in services matter for economic development, employment and competitiveness Concrete examples for Africa Coordinated regulatory reform and liberalization of services The role of Services Knowledge Platforms World Bank database on Services Trade Restrictiveness Indices

3 Services matter for growth
Since the services sector is often the largest contributor to GDP, improvements in productivity in services have a substantial impact on overall GDP growth. This figure compares the relationship between growth in services and GDP growth with that of growth in manufacturing and GDP growth for 136 countries during the period of 2000 to 2008. While it is not possible to infer causality it is clear that while the growth of both services and manufacturing is positively related to GDP growth, the relationship is much stronger and higher for services than for manufacturing. This reflects that in most economies services are the largest part of the economy so that growth of services will tend to dominate overall GDP growth. Growth driven by increases in the quantity and productivity of capital and labor inputs. Services are determinants of the productivity of these inputs: Financial sector (intermediation across time), and Human capital (education, health….); “Producer” services underpin specialization: allow “splintering” of value chain and TFP through their intermediation role and coordination and communication across time/space Nevertheless, in the past services have often been put to the periphery of discussions over growth and there is still a presumption by many policy advisers and officials that growth and development can be achieved only through an expansion of the manufacturing sector. The fixation on manufacturing perhaps reflects old views that productivity growth in services is limited. However, the recent experience of India and a number of other Asian countries shows that labor productivity in services can be higher than that in manufacturing and that growth of productivity in services has matched growth of productivity in manufacturing in China. Experience from across the world shows that growth of the services sector contributes more to poverty reduction than does growth of agriculture or growth of manufacturing. This is because services have been the main source of employment growth and reflects that the proportion of women employed is services is typically higher than that in manufacturing and increasing employment opportunities for women is closely associated with poverty reduction. Source: World Bank, 2010

4 Services matter for employment
Shares of employment in agriculture, manufacturing and services The figure shows that over the 10 years from 1997 to 2007 and across all major regions, growth in employment in services has been the dominant feature of changes in the labor market. In Africa, the share of employment in agriculture has fallen quite sharply from over 72 percent of the total to less than 65 percent, although it still remains considerably higher than in other regions. Employment in industry increased by just 1 percentage point to just under 10 percent, while employment in services increased by more than 6 percentage points from around 19 to almost 26 percent. Source: ILO Global Employment Trends

5 Trade in services plays key role
Increased tradability of services and global value chains Exports of services can drive diversification Potential 18 million new jobs in developing countries from offshoring of services (each job generates a further 3 jobs) Exports of services from land-locked LDCs have been growing faster that exports of goods for countries such as Rwanda and Ethiopia services account for more than half of total exports Access to cost-effective services affects competitiveness Imports of services and FDI can lead to greater competition, lower prices, higher quality and more variety There are a number of reasons why services are becoming dynamic sources of growth in developing countries. Most important is that many services once thought to be non-tradable, such as banking, insurance, telecommunications and also business services, education and health, but can now be exchanged across international borders. Healthcare is just one example of how technology is changing the nature of the sector and its growth prospects. For many healthcare is a personal service requiring face to face interaction between care giver and patient. However, trade in healthcare services has emerged through the movement of persons to consume healthcare abroad and through the movement of professionals to provide care overseas. We are also seeing the emergence of telemedicine whereby communications and information technologies are allowing health professionals to provide advice and even consultation across borders.

6 Access to professional services matter for productivity
Higher labor productivity (sales/employees) is associated with greater usage of professional services in all East African countries, especially for small firms Productivity of Users and of Non-Users of Professional Services – Average across firms in East Africa

7 Productivity of users vs
Productivity of users vs. non-users of professional services – Ethiopia’s example Source: World Bank Survey of Users of Accounting, Legal, Engineering and IT Services in Ethiopia, 2011.

8 Professional services in Eastern and Southern Africa
World Bank research - one step towards facilitating more informed choices as East African governments develop a strategy for coordinated reform and liberalization of professional services Collection of extensive information - hitherto missing - on market conditions, policies and regulatory regimes in accountancy, engineering, and legal services in East Africa Key findings: national markets for professional services in East Africa remain underdeveloped regional market is fragmented by restrictive policies and regulatory heterogeneity Policy recommendations: For professional services to make a meaningful contribution to growth in East Africa policy action is required in four areas: domestic regulatory practices, trade policy, international labor mobility, and education Improving and expanding professional services will require both national reform and international cooperation Regulatory issues must be addressed to allow for effective competition in an integrated regional market National level reforms could include: Relaxing entry requirements, e.g. by eliminating multiple licensing requirements Eliminating restrictions on competition, e.g. price regulation; advertising prohibitions Reduce costs of access to & improve quality of education And at the regional level: Removing trade barriers, e.g. allowing commercial presence, movement of natural persons Increased regulatory cooperation, e.g. mutual recognition of qualifications; development of appropriate regional standards Creation of regional education and training hubs

9 Summing up: Services and trade in services matter
For growth and competitiveness Many services are inputs into production and trade - economy-wide impacts from improvements in services Lowering costs for firms requires better and cheaper services For employment Services largest contributor to job creation High employment rates for women For poverty reduction Poverty reduction more strongly correlated with growth of services than with growth of manufacturing Coordinated reform and liberalization of services

10 Professional services knowledge platform
Challenge: integrating markets (expanding trade) while achieving regulatory objectives efficiently Filling information gaps Collect and analyze data on: - Availability of professionals, prices - Market structure and trade flows - Domestic regulation - Trade barriers - Education requirements - Immigration rules Addressing knowledge gaps - Provide information on regulatory experiences and regulatory impact assessments - Propose guidance on trade and regulatory reforms, including good practice - Facilitate networking and information exchanges, especially South-South exchanges Addressing political economy constraints - Translate knowledge into policy choices - Identify interests and preferences of various actors - Facilitate direct engagement of stakeholders - Provide platform for national and regional dialogues

11 Availability of professionals in Africa

12 Regulation of legal services
Entry Regulation Conduct Regulation University degree and practical training required Bar exam requirement and Continuing education obligation Compulsory membership in the professional bar Scope of exclusive rights: 9 out of 10 Price regulation : Binding minimum and maximum prices Advertising is prohibited Restrictions on type of corporation Absence of quality control instruments

13 Explicit barriers to trade in accounting services
Not permitted since commercial presence required to perform most accounting and auditing activities Mode 1 (cross-border delivery) Foreign ownership restrictions: ownership by non-locally licensed professionals not allowed Restrictions on activities that can be performed by foreign accounting professionals Mode 3 (commercial presence) Discretionary limits (labor market tests & econ. needs tests) for foreign-licensed accountants Mode 4 (presence of natural persons) commercial presence World Bank Services policy database :

14 How will the knowledge platform work?
Mechanism that brings together regulatory expertise, trade policy makers, the private sectors, think tanks, universities and regional bodies Analytical work and advisory services disseminated through: Online platform with transparent, easily searchable databases, and social networks Face-to-face interactions between practitioners, policymakers, think tanks, regional secretariats

15 Africa Region - Poverty Reduction and Economic Management Unit
Thank you! Nora Dihel Africa Region - Poverty Reduction and Economic Management Unit

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