Exports of Services, Exports of Goods, and Economic Growth in Developing Countries

This paper explores quantitatively the nexus between GDP growth and the two components of total exports, focusing particularly on the role of services exports in developing and transition countries. The Introduction exposes some of the shortcomings and methodological problems affecting BOP statistics on international trade in services, and briefly describes the main trends in international trade in services. Econometric analysis in the following sections shows that, in the long run, services exports do have a positive impact on GDP growth in developing countries. Yet, for developing countries, the services exports/ GDP growth nexus is weaker than in the case of developed countries. Moreover, in most developing regions, the growth-enhancing impact of exports as a whole appears to have declined in the 1990s, although this decline appears to be due more to the merchandise component of exports rather than to the services component. In the conclusions, a tentative explanation for the aforementioned results is proposed. Export-oriented services activities in developing countries are often under the control of foreign economic agent, and they tend to be poorly integrated to the rest of the domestic economy. Thus, their potential as engines for growth is relatively weak. Moreover, many previously inward-oriented developing countries, under conditions of financial duress, diverted resources towards exports as a goal per se, rather than in the framework of a comprehensive long-term growth-maximizing strategy. Such opening-up reforms ended up facingdiminishing returns