Services Trade

Abstract

Abstract With the advent of the telecommunication and transmission technology many services that had long been considered as purely domestic (or non-traded) activities, have become tradable, such as financial services (like banking and insurance) and business services (like software development, call centres, consultancy services including medical advice, and the like). All these service activities have the inherent characteristics of non-requirement of physical transportation of product, and therefore have the scope of digitization. Thus, services are no longer just inputs to goods traded, but are themselves traded as final consumption. There are certain features of services itself that makes services trade distinctly different from commodity trade. The determinants of comparative advantages of nations in services are also not exactly the same as those for commodities, though there are some broad similarities. An interesting recent dimension of services trade is virtual trade in intermediate services driven by the time zone differences in countries engaged in such trade/exchange of services. Typical example is trade in business processing services between India and the United States. Non-overlapping time zones can itself establish comparative advantage for nations and form the basis of trade between them. Thus, geographical distance, which usually constrains international trade in goods by increasing cost of transporting goods from one country to the other, may actually promote virtual trade in intermediate services. All these different dimensions of services trade are discussed in this Chapter.