Services trade and growth

One of the stylized facts of economic development is that the share of services in GDP and employment rises as per capita income increases. In the lowest-income countries, services generate some 35 percent of GDP. This rises to over 70 percent of national income and employment in OECD countries. The expansion in the services intensity of economies is driven by a number of factors. Standard explanations revolve around both demand- and supply-side factors, including income elasticities of demand for services that exceed one, limited scope for labor productivity improvements in the supply of consumer (final product) services, and the rise in demand for coordination and intermediation services associated with structural change (e.g. the shift out of subsistence agriculture, urbanization, changes in business practices) and the expansion of the extent of the market, as well as incentives for firms and government bodies to spin off service activities to specialized providers (outsourcing). Advances in information and communication technologies (ICT) are increasingly permitting cross-border – disembodied – trade in labor-intensive services, accelerating the growth of services activities.