IEG: The Economics of Trade in Services

TheCityUK is pleased to announce the release of our quarterly report from TheCityUK’s Independent Economists Group – The Economics of Trade in Services.

The research report discusses the crucial role services can play in global trade and their ability to drive economic growth. Trade in services has been growing strongly in recent years and this pattern is likely to be encouraged further by the development of the digital economy. However, services account for three-quarters world GDP, but only about 20% of world trade, in part because:

  • Services trade tends to be underestimated because over 50% of the trade is in the form of a commercial presence in another country
  • There are significant barriers to trade in services – estimates suggest that these barriers are around seven times the barriers for manufacturing firms.

The existence of high barriers means that only a small proportion of services firms trade – in the UK 38.7% of manufacturing firms export, but only 8.7% of services sector firms.

In general the highest barriers to trade in services tend to be in non-OECD countries. Estimates show that on average barriers to services sector trade in the UK are amongst the lowest in the OECD, with only the Netherlands having lower barriers.

The UK has the second-largest services trade surplus and the second-highest level of services exports in the G8, after the US. UK services exports account for 7% of world services exports.