Start with technological growth
Posted: Sat Apr 05, 2025 4:51 am
But will service exports raise living standards as much as manufacturing does? As Dani Rodrik of Harvard University notes, manufacturing has historically had advantages in three areas: It is more technologically advanced, it produces goods that can be traded internationally, and it creates many jobs. Although services are closing the gap in the first two sectors, manufacturing still provides more jobs.
. A factory in a poor country combines man and machine, placing an unskilled worker at the frontier of technology. Then, as technology improves, the worker becomes even more productive. Tradable services cannot absorb unskilled workers in this way. Yet, as the World Bank has noted, labor productivity growth in emerging economies outside East Asia has increased at about the same rate in services as in manufacturing since the 1990s—and service productivity has grown faster in fax lists emerging economies than in rich ones. Moreover, artificial intelligence may soon provide another lift for service workers. Two experiments have found that AI tools help lower-skilled knowledge workers catch up with higher-skilled ones when writing marketing copy and providing customer service.
Services are also closing the gap with manufacturing in terms of tradability, albeit slowly. Before the Internet, the ability to ship products abroad was the main difference between goods and services. Trade allows exporters to reach much larger pools of demand and achieve economies of scale that would otherwise have been beyond their reach. As trade in goods has stagnated as a share of global GDP since 2010, it has become harder for newcomers to compete. Trade in services is booming and therefore more welcoming. But even at the rate of growth over the past decade, it will take 15 years to reach half the value of trade in manufactured goods.
. A factory in a poor country combines man and machine, placing an unskilled worker at the frontier of technology. Then, as technology improves, the worker becomes even more productive. Tradable services cannot absorb unskilled workers in this way. Yet, as the World Bank has noted, labor productivity growth in emerging economies outside East Asia has increased at about the same rate in services as in manufacturing since the 1990s—and service productivity has grown faster in fax lists emerging economies than in rich ones. Moreover, artificial intelligence may soon provide another lift for service workers. Two experiments have found that AI tools help lower-skilled knowledge workers catch up with higher-skilled ones when writing marketing copy and providing customer service.
Services are also closing the gap with manufacturing in terms of tradability, albeit slowly. Before the Internet, the ability to ship products abroad was the main difference between goods and services. Trade allows exporters to reach much larger pools of demand and achieve economies of scale that would otherwise have been beyond their reach. As trade in goods has stagnated as a share of global GDP since 2010, it has become harder for newcomers to compete. Trade in services is booming and therefore more welcoming. But even at the rate of growth over the past decade, it will take 15 years to reach half the value of trade in manufactured goods.