SERVICES AND ECONOMIC DEVELOPMENTA MESSAGE FROM THE GLOBAL SERVICES COALITION
September 22, 2010
The world economy is increasingly dependent on services. This is evident from the importantsynergies that exist between various parts of both the global economy and individual national
economies. There are a number of contributing factors, among them the rise of knowledge-based
activities and the importance of intangible assets in all economies, and the interplay of both withthe manufacturing and agricultural sectors.
Productivity growth in services is as critical to economic recovery, jobs and growth as in othersectors, and the fastest and most proven way to improve services productivity is for trade inservices to be developed and progressively liberalized. Yet liberalization of trade in services
lags behind that of other sectors and activities. Services trade liberalization could result in global
welfare gains that are a multiple of the potential gain from eliminating barriers to trade inindustrial goods and many times the projected gains from liberalization of global agriculturaltrade. It is now time to make progress. That is the key message of the Global Services Summit,
which meets today in Washington DC. It is a message that is developed in the attachedStatement on Development, which highlights the vital role of the "infrastructure" services sectors
including financial services, information and communications technology, express delivery,
retail services, and energy and environmental services.
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The need for progress is urgent. Services contribute to every aspect of a country’s economy;
they are a fundamental part of the economic infrastructure, and can help determine a country’ssuccess in exporting goods and agricultural products, as well as other services. Neglecting therole of services will undercut the goals of more competitive manufacturing and agriculture
sectors. Service sector development can drive industrialization: the potential for high economic
growth in developing countries no longer lies solely with the development of the manufacturingsector.
Liberalization of international trade and investment in services drives economic growth anddevelopment, bringing higher quality and lower prices through competition and integration of themarkets, and promotes more advanced applications that contribute to yet better welfare. They
create a dynamic environment that promotes infusions of capital and technology that in turngenerates new economic growth. All countries, at all levels of development, benefit from thisenvironment. All countries should support the case for fostering services development and forservices liberalization.
Australian Services Roundtable
Barbados Coalition of Service Industries
Canadian Services Coalition
Coalition of Service Industries, United States
European Services Forum
Financial Leaders Working Group
Hong Kong Coalition of Service Industries
Japan Services Network
Taiwan Coalition of Service Industries
TheCityUK, United Kingdom
Wellington Employers’ Chamber of Commerce, New Zealand2September 22, 2010
GLOBAL SERVICES COALITION STATEMENT ON DEVELOPMENT
The world economy is increasingly dependent on services and the important synergies that exist
between various parts of the economy. There are a number of contributing factors but a key force
is the rise in importance of knowledge and intangible assets in all economies, and their interplay
with the manufacturing and agricultural sectors. Services now account for 67% of global
economic output. For OECD countries the figure is 73%, for the U.S. it is 77%, and for Hong
Kong SAR, 95%.
In developing countries too, the share of GDP generated by services has been growing; it rosefrom 37% in 1970 to 45% in 2006. As countries transition to middle income status, growth in theeconomy reflects not only the shares of agriculture and manufacturing, but the increased
importance of services.
This trend is evident also in employment. From 1995-2005, worldwide employment in theservice sector increased from 34% to 39% of the global workforce.
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Further, services attract more foreign direct investment in developing countries than all otherindustries combined. According to UNCTAD, developing countries received services-related
inward FDI flows of $255 billion from 2006-2008.
Finally, worldwide trade in services has grown rapidly, though goods trade is much larger.
World services exports grew from $365 billion in 1980 to $3.8 trillion in 2008, though they fellback to $3.3 trillion amid last year’s global economic downturn.
Productivity growth in services is as critical to economic growth as in other sectors. The WorldBank has found that countries with high productivity growth in services also tend to have highoverall economic growth. In a sample of 50 developing countries, growth in the service sector
was found to be more closely correlated with poverty reduction than was growth in agriculture.
The fastest and most proven way for developing countries to improve their services productivity
is to create a positive climate for the “infrastructure” services essential to create 21st Century
economies: financial, information and communications, express delivery, retail, and energy &environmental services. Three critical elements are required for these services to develop:
capital, technology, and advanced applications which can be lacking in many countries. Thesegaps can be fully and expeditiously addressed by attracting new investment and expertise,including by enabling competition in the market by foreign providers. Continued reliance on an
indigenous industry to supply the capital and technology a country needs will leave that country
underserved and less competitive in services and without a healthy set of sectors that are criticalto economic development. Moreover, in all countries these essential services require aregulatory framework to enable entry and address issues associated with internationalintegration.
Services are important in and of themselves, but are also “force multipliers” for all other sectors.
That is, efficient services multiply the efficiency and global reach of other activities including
manufacturing and agriculture, and enable greater productivity in those sectors. Imagine
sustaining today’s levels of trade in goods without express delivery services, or today’s trade in
agriculture without the benefit of transportation and financial services.
According to one study, services trade liberalization could result in global welfare gains morethan double the potential gain from liberalization of barriers to trade in industrial goods and over
30 times the projected gains from liberalization of global agricultural trade.
The following are a few examples of how key infrastructure services drive economic growth anddevelopment.
Financial Services
Efficient financial services are essential for dynamic modern economies. Liberalizing trade in
financial services, including measures to ensure equal competitive conditions with state-owned
enterprises that are engaged in commercial activities, improves capital market efficiency,
bolsters financial sector stability, and supports economic growth and job creation in bothdeveloped and developing countries.

2Foreign banks’ participation in a market improves access to credit for businesses of all sizes.
Liberalization can facilitate access to international capital markets and augment the amount ofsavings available for productive investment. Insurance services, in a liberalized market, provide
unique and important social benefits, including financial security, private compensation for loss
(in place of government compensation or no compensation), investment in basic infrastructure,and mobilization of capital for other long-term investments. Similarly, securities and asset
management services create new savings and investment vehicles for businesses andentrepreneurs; a competitive asset management sector is an essential component of the global
shift in how pensions and retirement systems are structured.
Financial systems in both developed and developing economies have grown substantially inrecent decades. The size of financial systems, as measured by total financial assets to GDP, wasroughly 60% of GDP in high-income countries in 1980, and grew to more than 120% in 2007. In
upper middle income countries, the size of the financial system has grown from slightly morethan 30% of GDP in 1970 to more than 60% in 2007.
According to the WTO, the financial services sector employs more than four percent of theworkforce in countries such as Canada, Cyprus, Ireland, Switzerland, the United States, andUruguay, and more than 10% in places such as the Bahamas, Cayman Islands, Luxembourg, andSouth Africa.
Financial services trade has experienced rapid growth in tandem with the deepening of financialsystems. World exports of financial services (including insurance) have grown by 17% per year
since 2000, reaching US$370 billion in 2007. The subsequent financial crisis revealed the needfor new disciplines and regulatory repair in certain financial services sectors; this is being
vigorously addressed in the markets affected. While international financial activity has
traditionally been dominated by developed country suppliers, in recent times, developing
countries have become important sources of lending and investment, particularly to otherdeveloping countries.
Countries that fully liberalize financial services markets are able to realize these benefits, and as
a result, experience GDP growth that is, on average, 1% faster than countries which do not,according to the World Bank.
Information and Communications TechnologyInformation and communications services, from digital services to the networks over which theytravel, are essential to 21st Century commerce. Domestic producers will find it difficult tosucceed, even in purely domestic markets, without access to quality information andcommunication technology (ICT) and related services at competitive prices. ICT has been adriver of economic growth, has spurred innovation and competitiveness, and has improved
people’s lives by facilitating much greater access to goods and services. Liberalization in thissector has allowed developing countries to become significant players in regional and globalmarkets.
ICT services include both IT services and communication services. Communication services
provide the network infrastructure that supports the transmission of voice, data, images andvideo. IT services such as cloud computing, and data center services add data processing,3

application and storage capabilities. This modern infrastructure supports a broad range of ICTenabled services that can be delivered electronically, including online stores, business process
outsourcing, social networking services, search engines and online payment systems.
Global spending on ICT services is projected to reach US$800 billion this year, according to theWorld Information Technology and Services Alliance, opening up tremendous trade andinvestment opportunities for suppliers around the world. Interestingly, the biggest consumers ofthese services are other service industries. The financial industry, for example, purchases more
ICT services than does the manufacturing sector, and the health care and professional services
industries are among the largest consumers of ICT services.
Telecommunications are essential in the production of all other services, and the sector isgrowing rapidly, which is also significant for others engaged in the ICT industry, including those
who are developing and selling hardware and software, many of which are emerging economies.
The BRICs, for example, are the fastest growing markets for PCs, and China will soon be thelargest market for PCs in the world. Mobile growth in particular and the e-commerce activities
that mobile capabilities support (e.g., communications, banking, entertainment) has exploded,
driven largely by consumer interest in accessing information and content and in the proliferationof ways to access information at home, in the office and on the move. The growth of broadband
services and the use of the internet have been dramatic and drive economic growth unlike anyother service.
Countries with substantial liberalizing WTO telecoms commitments experienced a more rapid
rate of growth in telecom sector revenues (and consumer benefits) than those without suchcommitments. For example, in low-income countries in Europe and Central Asia, telecom sector
revenue in countries with liberalizing WTO commitments grew from 1.5% to more than 4% of
GDP in the years following the WTO Agreement on Telecommunications Services (1997-2002),
while the figure was essentially flat during the same period for countries that made noliberalizing commitments.
Telecommunications investment and usage has surged in countries that have liberalized thisindustry, and the costs of both local and long distance calls have fallen dramatically. WorldBank statistics underscore the correlation between availability of telecommunications services –particularly broadband and wireless – and standards of living. For every 10 percentage-point
increase in the penetration of broadband services, there is 1.3 percentage-point increase ineconomic growth.
IT services help to improve productivity and competitiveness across all sectors of the economy.
When combined with communication services, IT services enable the creation of new
applications and business models, open up access to more export markets for many services, andprovide access to critical services for economic growth, including low-cost access tosophisticated IT capabilities.
The use of ICT enables the public and private sectors to address many of society’s criticalchallenges in areas such as energy efficiency, improved healthcare, smarter transportation andbetter public services. ICT is central to the implementation of "smart grid" and other "smart" or"green" technologies. Moreover, ICT-enabled services allow for more efficient andenvironmentally friendly delivery of services across the entire economy, at the same time as they4

create growth opportunities for developed and developing countries alike. ICT services can also
help improve the delivery of public services through increased competition, transparency andefficiencies associated with e-government. E-commerce, the advent and spread of low-costbroadband networks, and the spread of advanced computer services, can help drive social andeconomic development. The future growth of ICT services will be a key to the economic growthand success of a country or region.
Express Delivery
Express delivery services drive economic development, enhance competitiveness and attract
additional foreign direct investment. The core business of the express industry is the provisionof value-added, door-to-door transport and deliveries of next-day or time-definite shipments,
including documents, parcels and merchandise goods. Express Delivery Services offer
entrepreneurs a way to reach new consumers and move past many of the logistics weaknesses inmany developing economies. The Express industry supports over 2.75 million jobs today aroundthe world and directly contributed over $80 billion to world GDP in 2008. The Express industry
is expected to support almost 4.5 million jobs by 2018 and continue to grow almost twice as fast
as global GDP growth.
Developing countries that embrace liberalization in this sector improve the competitiveness of
their businesses and entrepreneurs as they gain access to new markets and consumers around theworld. Express delivery services are one component of a host of supply chain services thattogether can enhance development. Development requires tapping into economic growth
opportunities around the world. Express Delivery Services can connect people and businesses toglobal supply chains. The absence of Express Delivery Services in a developing country leaves
it less attractive to foreign investors. Countries at every level of development that embrace andliberalize Express Delivery and other logistics services grow faster, compete better, and develop
more quickly than those that do not.
Reducing customs, regulatory, investment and other services barriers to Express Delivery andother logistics services can enhance a country’s development often more quickly than thereduction of more traditional tariff barriers. Moreover, Express Delivery Services empowersmall- and medium-sized enterprises, which are the lion share of enterprises in the developingworld, by connecting them to new markets and customers around the world.

Retail Services
Virtually every good or commodity makes its way to the market through distributors.
Wholesalers, retailers, commissioned agents and franchisers provide the domestic infrastructure
for moving goods to consumers. The value added in the distribution stages can greatly exceed
the value added in production; for example, the value created in distribution accounts for 70% of
total value for textiles and over 75% for food products, according to UNCTAD.
Liberalization of retail services allows enterprises to manage inventories more efficiently withlower risk, minimize spoilage and waste, and offers consumers greater choice at lower prices.
This last argument in itself should be a policy driver in developing countries, in order that poor
consumers have better access to basic necessities.
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Energy and Environmental Services
Energy accounts for approximately one-tenth of world economic output, according to the WTO,
and an efficient energy sector is a prerequisite for social and economic development. The
availability of varied sources of energy at competitive prices contributes to a nation’s ability tocompete in the world marketplace. There is a high correlation between more efficient energy
usage and economic growth, increased life expectancy, and higher standards of living. Moreover,modern energy services provide the means to develop energy resources in an environmentallysound manner and in ways that promote responsible and efficient development and use of energy
resources.
Liberalizing the energy services sector helps realize these goals. In countries where suchliberalization has taken place, both foreign and domestic investment have increased competitionand lowered prices. New technology in extraction, transformation, transportation andcommercialization of energy products and services has modernized the energy supply chain,generating increased capacity. The spread of advanced technology and services in this sector
will be crucial for developing countries to sustain their development path.
The availability of efficient environmental services for waste management, clean water
management, efficient water distribution systems, and air quality controls will be crucial
elements of economic development in the coming years, and will be essential for theimprovement of health and well-being in developing countries. Liberalizing the environmental
services sector will provide developed and developing countries alike access to the mostadvanced technologies to ensure a cleaner environment and the protection of valuable
environmental resources.

Conclusion
Services contribute to every aspect of a country’s economy; they are a fundamental part of theeconomic infrastructure, and can help determine a country’s success in exporting goods andagricultural products, as well as other services. Neglecting services will simply undercut thegoals of more competitive manufacturing and agriculture sectors. Indeed, a recent World Bank
paper argues that service sector development can drive industrialization, and that the potential forhigh economic growth in developing countries no longer lies solely with the development of the
manufacturing sector.
Liberalization of international trade and investment in services drives economic growth anddevelopment, and brings higher quality and lower prices through competition. It creates a
dynamic environment that promotes infusions of capital and technology that in turn generates
new economic growth. Countries at all levels of development benefit from this environment.

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