# **1 Introduction**

Globalization is creating many new trade and growth opportunities, with services trade increasingly becoming an issue for export‐oriented economies. Services are important to country trade strategies for two reasons: (1) they represent activities in which countries may have a comparative advantage. If tradable, they contribute to diversification and to expanding the markets for exports. (2) They are drivers of competitiveness for the whole economy. Not only can they help diversify exports, but they also feature in the production of many other competitive products: the competitiveness of most goods exported in the global marketplace depends on access to both raw material and critical services inputs, especially efficient, competitively priced utilities; information and communications technology (ICT) and transport; banking, accounting, insurance, and other financial services; and such professional services as legal and marketing.

For countries in the Organisation for Economic Co‐operation and Development (OECD), growth in services productivity has been shown to be a driver of economic growth, and productivity growth generally can be traced to producer services (see Francois and Hoekman 2010; Inklaar, Timmer, & Ark 2007, 2008; and Triplett & Bosworth 2004).<sup>1</sup> The literature in general has also found a positive relationship between productivity in services and productivity in the economy as a whole. Services imports serve as a channel for the transmission of new technologies, which allows for higher services exports in skill‐intensive industries and higher value added in manufacturing exports (see Francois & Woerz 2008).<sup>2</sup> Trade has been vital in increasing the productivity of service sectors and over time has had considerable impact on productivity generally (Van der Marel 2011).

In examining the Russian Federation’s services trade, this report identifies trends in the development of services both domestically and as exporters, assesses the potential for increasing services exports to neighboring markets, examines linkages between services and other sectors, and analyzes how the main service industries are regulated. Among questions addressed are: (1) Is there untapped potential to develop the services sector in Russia? (2) How do Russia’s services exports perform in comparison to other countries? (3) How close are the linkages of services to other economic activities compared to direct services exports? (4) What is the trade potential for services? (5) What factors lie behind services trade performance? and (6) What is the regional pattern of Russia’s services trade?

The paper uses the analytical model proposed in Sáez et al. (2014), which provides for integrated analysis and diagnostics of the trade competitiveness of the services sector using a wide range of indicators. Cross‐country comparisons are based on World Development Indicators (WDI) and other publicly available World Bank data, and on two new databases: (1) The Export in Value‐Added database measures trade on a value added basis based on national input‐ output tables from the Global Trade Analysis Project (GTAP) project for 1992, 1995, 1997, 2001, 2004, 2007, and 2011. It also measures not only the direct contribution of services to total exports in terms of value added but also their indirect contribution through linkages. In other words, the data set

> 1 Producer services include telecommunications, transport and distribution services, financial intermediation, and business services, among others.

> 2 For the positive link between liberalization of services trade and manufacturing productivity, see Arnold, et al 2011 and Arnold, et al 2010) and Arnold et al (2008).

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