Question

The Services sector has been steadily rising in relative importance in GDP of the United States, as well as elsewhere around the world. Since "services" have been identified as "non-tradable" (e.g., it is difficult to export haircuts), it may be argued that this trend will likely slow the rapid growth in international trade. Discuss.

Answer 1

Introduction:-

Gone, are the days when exports were only limited to production of goods. This was a time when countries primarily relied on their production process and were focused on producing more physical products which would easily sell in the market places.

The progress of countries such as China had primarily thrived because of the production capabilities of these final consumption products only.

However, owing to the success of the IT revolution across the globe, services have earned due respect when it comes to the overall contribution to the GDP and otherwise to general growth of any economy respectively.

Services refer to intangible benefits which consumers today have direct access to. Services include facilities such as Banking, Insurance, education, medical expertise etc.

Case Specifics:-

In the case above, it is wrongly argued that services are non-tradable and would slow rapid growth in international trade. On the contrary, services have rapidly contributed towards growth of the US Economy and in countries such as India which have largely been the receiver of direct benefits of international trade in services.

Services today are no longer limited to non-tradable ones such as getting a haircut but have increased to other sectors such as banking, insurance, medical expertise, legal professions etc. Even haircuts even though may not be able to be traded, yet franchises have cropped up across numerous countries which provide the same kind of uniform haircut experience across the globe.

Services as described above have a huge share in the overall development of an economy and have only increased the Gross Domestic Product.

It is therefore, wrong to say that services would slow down international trade when it has ensured that countries with even low natural resources can provide professional cutting edge experience to the consumer and increase their revenue and be well known across the international markets.

Conclusion:-

Due to rapid expansion of services and expertise which is shared owing to the IT revolution across the globe, it is wrongly argues in the case that Services are Non-Tradeable since expertise can be shared and customers indeed opt for cheaper and better services which are sold cross border. Therefore, the overall share in international trade of services is only to increase.

Please feel free to ask your doubts in the comments section if any.