Services trade within Central and Eastern Europe region: determinants, barriers, effects

Under central planning, services industries were generally neglected. Marxist thinking emphasized the importance of tangible (material) inputs as determinants of economic development, and classified employment in the services sector as unproductive. Since 1990, the services sector has grown rapidly in the countries of Central-Eastern Europe Region. Foreign investment, especially foreign direct investment (FDI), has played an important role in this process. But there are some important differences between goods and services trade. While much of trade theory has developed around the trading of goods, less theoretical and empirical work has focused on trade in services. While some services (architectural drawings, consultant reports etc.) are tangible, visible, and storable and are thus like many other goods, many services require direct interaction between producers and consumers. This proximity requirement means that for many services, factors of production (labor and capital) must be mobile for international transactions to occur. For this reason, the real barriers to increased trade in services are not simply tariffs, but rather, beyond those at the border. Clearly removing barriers to trade in fundamental services such as transportation, communications, information processing etc. will help to facilitate economy-wide gains. Nevertheless services themselves are becoming increasingly tradable as a result of the greater mobility of people and developments in information, computer, and telecommunications industries.The purpose of this paper is to analyse main factors influencing services trade.