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SUSTAINABLE TRADE- The rising role of services in global trade – Feb 2023

Author: Patrick Low Senior Fellow – Asia Global Institute

It has become fashionable to argue that globalization is in decline. The picture is more nuanced, however. While trade in manufactures as a proportion of overall economic activity appears to have peaked in some countries, the growth of trade in services as a proportion of GDP has certainly not slowed.

The future of services trade in global value chains

A recent series of papers by Richard Baldwin argued that globalization and changes in the relationships that underlie it are complex and require careful consideration if we are not to be misled by superficial analysis of their trends. Baldwin demonstrated that reliance on a simple aggregated measure of the relationship between GDP and trade doesn’t explain much and results in misleading conclusions. Contrary to prevailing wisdom, Baldwin says, globalization has not peaked, notably in the EU. For other major trading countries (China, Japan, and the United States), peaking occurred at different times rather than in the synchronization suggested by a simple measure of merchandise trade-to-GDP ratio that marked 2008 as the turning point.

Commercial services are usually thought of as services supplied by businesses as opposed to governments. Many services fit into the OCS category but in classification terms some 60 per cent of them are defined as ‘other business services’ or ‘ICT including telecoms, computers, and information services.’ This discussion does not take account of the services that add value to trade but are statistically categorized as goods. A correction of this statistical quirk would further emphasize the role of modern services in globalization.

Enhanced access to data and the capacity to process large data sets allow for greater capacity to capture economy-wide input-output interactions.

Full article can be found here:

Patrick Low is a Senior Fellow at the Asia Global Institute of the University of Hong Kong, a Senior Adviser for Tulip Consulting, and a recently appointed Research Associate at TRALAC (Trade Law Centre NPC of South Africa). He currently works in an advisory capacity and as a consultant.

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