# **6. Concluding Remarks**

Technology has changed the very nature of the production frontier of services and in particular service exports, which has resulted in a rapid increase in the service exports and growing share of services in GDP growth. Our analysis suggests that increasing sophistication of services is positively related to growth. We specifically look at what countries export rather than how much and the results show that service exports sophistication is positively related to growth, even when controlling for a number of variables across different samples. Though we have not proved causality beyond doubt, there is an indication for a new channel for growth that may be of significance for developing countries, and especially countries that are trying to get out of the middle-income trap.

The distinctiveness of increasing service export sophistication and growth is twofold: i) traditional service activities gain in productivity from technology, transportability and tradability, and ii) there is a host of new service activities that have emerged (due to unbundling and new technological innovation). Thus, thinking about export led growth, diversification, the models of globalization and growth should include specialization and sophistication of services as well. Including services in growth considerations does not imply neglecting manufacturing exports and its benefits, just that services can be an additional channel for promoting high growth. Increasing sophistication in service exports has important implications for countries that are stuck in a ―middle-income trap,‖ such as Malaysia, Vietnam, etc., or for countries that wish to sustain their rapid growth, such as India, Sri Lanka, etc. Further, re-igniting growth in United States and G-20 economies will partially rely on innovation and competitiveness in sophisticated service exporting firms. It also offers a prospective route for growth in Africa. In the global rebalancing, service exports might be an imperative channel either through the lens of IndiaChina, South-South Trade, Advanced-Emerging trade clusters or possible new trade networks.

As outlined above, to have a better understanding of how service sophistication affects growth, we need a better and more disaggregated data on service exports, treating them at par with data on goods exports. Considering that service exports sophistication is positively associated with economic growth, our paper set out the future research agenda. What are the determinants of sophistication of service exports and how do they differ from the determinants of good exports sophistication? What are the dynamics in the product space of different service activities? What structural, institutional and economic policies in country-specific context create value added within service exports, foster service productivity growth and export performance, i.e., what are the channels through which service export sophistication affects growth? What is the relation between local trade restrictions and global trade agreements and export of sophisticated services? What are countries doing to prevent sophistication in service exports? Is this nature of service growth inclusive?

There are many examples, but the Indian experience has shown that even when approximately 1 percent of its population is engaged in high productivity service exports, it has contributed to overall high growth. Various factors may drive competitiveness amongst countries exporting services, driving specialization and sophistication in service exports. Countries should continue to build on specialization, but also extend this idea to sophistication in service activities as a potential route to economic growth.

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