Services productivity and trade liberalization: case of ASEAN

Abstract

Several studies have highlighted the importance of services sector development and in particular share of services to GDP has positive relationship to employment as per capita income increases. Services not only represent the biggest share in national GDP of OECD countries but are also the major source of overall productivity growth. In this paper we study the liberalization of the services sector and also productive contribution of services sector to productivity growth for the ASEAN countries. The paper extends the FDI Restrictiveness Index created for ASEAN Free Trade Agreement (AFTA) in Thangavelu and Lim (2011) to the services sector in ASEAN. The results indicate that liberalization of the services sector creates significant linkages within the domestic economy and also in supporting the manufacturing sector in the regional and global production supply-chain. Thus the liberalization of the services sector will have significant impact on the regional supply-chain for ASEAN. We also observed productivity improvements of the services sector from trade (exports) activities of ASEAN. This paper is an extension of the FDI restrictiveness.