The Impact of the Internationalization of Services on Developing Countries - Finance & Development - March 1996 - Carlos A. Primo Braga

Advances in information technology have vastly expanded the range of services that can be traded internationally. Developing countries stand to benefit on two fronts—they will be able to increase their exports of services and they will gain access to services not available domestically—provided they reform the regulatory environment and develop the necessary human and physical capital. HE INTERNATIONALIZATION of services is at the very core of economic globalization. Service industries provide links between geographically dispersed economic activities and thus play a fundamental role in the growing interdependence of markets and production activities across nations. Moreover, many services considered nontradable only a few years ago are now being traded actively, as advances in information technology (IT) expand the boundaries of tradability. As technological progress further reduces communication costs, trade in services is expected to continue to expand briskly. For developing countries, the growing internationalization of services and rapid technological change in IT present both opportunities and challenges. There are opportunities for developing new exports and attracting more services-related foreign investment. Technological progress will allow countries to leapfrog stages of development in building their info-infrastructures, thanks to technological discontinuities (e.g., the emergence of digital networks). One challenge facing the developing countries is the design of appropriate regulatory environments for service industries. Access to efficient services matters not only because it creates the potential for new exports but also because it will be an increasingly important determinant of economic productivity and competitiveness. Other challenges include undertaking necessary investments in modern IT networks and adapting educational systems to the information age.