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Services as a New Engine of Growth for ASEAN, the People’s Republic of China, and India

Author

Listed:
  • Ben Shepherd

    (Asian Development Bank Institute (ADBI))

  • Gloria Pasadilla

Abstract

Development of a vibrant and competitive services sector is a key characteristic of modern economies. In the developed world, services frequently account for two-thirds or three-quarters of all economic activity. The transition from agriculture through manufacturing to a services economy has been the hallmark of economic development for many countries. In line with this trend, we see many emerging markets currently working hard to support and develop services industries, and to put in place the regulatory structures required for more integrated international services markets. Doing so is likely to form an important part of efforts to avoid the so-called “middle income trap†, as improving services sector productivity is key to invigorating the economy and supporting the sustained innovation needed to move to high income status. The Association of Southeast Asian Nations ( Broadly speaking, measures aimed at reducing barriers to entry—which make markets less competitive—and lowering the costs of doing business for domestic and foreign service providers alike can have major impacts throughout the economy. A more productive services sector is not only good news for those directly connected with it through investment or employment, but also for other parts of the economy that use services inputs intensively. As just one example, growth in the services sector is one of the foundations on which international goods production networks are built, since it is impossible to move intermediate inputs across borders and undertake complex coordination of production processes without efficient markets for services such as transport, telecommunications, and business processes. ASEAN) countries, along with the People’s Republic of China (PRC), and India (“the ACI countries†), are no strangers to this underlying trend. Although experience differs greatly from one country to another, the data reviewed in this report strongly suggest that an increasing services orientation is likely to be a key feature of the ACI economies over the medium-term. Services trade among the ACI countries has been growing at a very rapid rate over recent years, despite starting from a relatively low baseline. Although data are scarce and must be interpreted with caution, an analysis of applied services sector policies in the region suggests that there is much policymakers can do to intensify this process, and increase the pace at which the transformation to a services economy is taking place. Indeed, services policies in the ACI countries are generally quite restrictive by world standards, even though experiences differ greatly across countries. In addition to traditional services sectors such as finance and telecommunications—where the gains from reform remain potentially large—there are also a number of “sunrise†sectors of interest to the ACI countries. Healthcare is one example, with considerable potential for trade growth through outsourcing of allied health functions, as well as movement of patients, movement of medical personnel, and foreign investment in hospitals and other health care providers. Business process outsourcing has already become an important export earner in regional economies such as India and the Philippines. There is clear scope for policymakers to support expansion of this kind of trade in the future. Regional integration can provide a useful impetus for continued reform of services sector policies, thereby promoting competitiveness more broadly. Priorities for the ASEAN countries include ensuring on the ground implementation of the ASEAN Economic Community Blueprint as it relates to services markets. The same is true of the ASEAN-PRC Trade in Services Agreement, even though only a few countries have made substantially stronger commitments than under the General Agreement on Trade in Services (GATS). Conclusion of a services agreement with India could provide an additional spur to the already rapidly growing services trade between ASEAN and India.

Suggested Citation

  • Ben Shepherd & Gloria Pasadilla, 2012. "Services as a New Engine of Growth for ASEAN, the People’s Republic of China, and India," Governance Working Papers 23290, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:govern:23290
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    References listed on IDEAS

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    1. Kalirajan, Kaliappa & Anbumozhi, Venkatachalam & Singh, Kanhaiya, 2010. "Measuring the Environmental Impacts of Changing Trade Patterns on the Poor," ADBI Working Papers 239, Asian Development Bank Institute.
    2. Yan Dong & John Whalley, 2010. "Carbon, Trade Policy and Carbon Free Trade Areas," The World Economy, Wiley Blackwell, pages 1073-1094.
    3. Fischer, Carolyn & Preonas, Louis, 2010. "Combining Policies for Renewable Energy: Is the Whole Less Than the Sum of Its Parts?," International Review of Environmental and Resource Economics, now publishers, vol. 4(1), pages 51-92, June.
    4. Ryuhei Wakasugi, 2007. "Vertical Intra-Industry Trade and Economic Integration in East Asia," Asian Economic Papers, MIT Press, pages 26-39.
    5. Kaliappa Kalirajan & Venkatachalam Anbumozhi & Kanhaiya Singh, 2010. "Measuring the Environmental Impacts of Changing Trade Patterns on the Poor," Working Papers id:2945, eSocialSciences.
    6. Wignaraja, Ganeshan, 2008. "FDI and Innovation as Drivers of Export Behaviour: Firm-level Evidence from East Asia," MERIT Working Papers 061, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    7. Kawai, Masahiro & Wignaraja, Ganeshan, 2008. "Regionalism as an Engine of Multilateralism: A Case for a Single East Asian FTA," Working Papers on Regional Economic Integration 14, Asian Development Bank.
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    Cited by:

    1. Pierre Sauvé & Anirudh Shingal, 2016. "Why Do Economies Enter into Preferential Agreements on Trade in Services? Assessing the Potential for Negotiated Regulatory Convergence in Asian Services Markets," Asian Development Review, MIT Press, vol. 33(1), pages 56-73, March.
    2. Schott, Jeffrey J. & Lee, Minsoo & Muir, Julia, 2012. "Prospects for Services Trade Negotiations," ADB Economics Working Paper Series 319, Asian Development Bank.
    3. Sauvé, Pierre & Shingal, Anirudh, 2014. "Why do Countries enter into Preferential Agreements on Trade in Services? Assessing the Potential for Negotiated Regulatory Convergence in Asian Services Markets," Working Papers on Regional Economic Integration 129, Asian Development Bank.

    More about this item

    Keywords

    China; India; ASEAN; New Engine of Growth; services sector; Emerging Markets; middle income trap; Regional Integration; services sector policies;

    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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