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The promise of modern services in traditional economies

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The process of structural transformation in now-industrialized economies was typically linear—first moving from agriculture to manufacturing, and later from manufacturing to modern, knowledge-intensive professional services. But growth in less industrialized countries over the past three decades has not conformed to this pattern . “Modern” services have provided productive growth opportunities in “traditional” economies, i.e., those without a large manufacturing base—either through serving final demand abroad or leveraging domestic demand from sectors other than manufacturing. These opportunities, in turn, have contributed to job creation. Serving demand in foreign markets

Much like manufactured goods, the production of modern services—computer programming, business process outsourcing (BPO), and knowledge process outsourcing (KPO) of accounting and architectural and engineering services—is fragmented across countries. This can occur when the development, maintenance, and training for software-related code is performed in one country and delivered digitally to customers in another. This labor cost arbitrage is reflected in the inverse relationship between the share of cross-border delivery (i.e., “mode 1” trade under the World Trade Organization’s General Agreement on Trade in Services) in total exports of information and communications technology (ICT) and professional services and per capita income levels (Figure 1). Service providers in some developing economies—such as […]

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