Trade between developed and developing countries example

"When countries open up to trade, they generally benefit because they can sell more, then they can buy more. And trade has a two-way gain."-- Jeffrey Sachs, Special Advisor to the UN Secretary-General and former Director of the UN Millennium Project Developing countries depend on national and global economic growth to achieve the Millennium Development Goals (MDGs) by 2015. In this regard, international trade is recognized as a powerful instrument to stimulate economic progress and alleviate poverty. Trade contributes to eradicating extreme hunger and poverty (MDG 1), by reducing by half the proportion of people suffering from hunger and those living on less than one dollar a day, and to developing a global partnership for development (MDG 8), which includes addressing the least developed countries' needs, by reducing trade barriers, improving debt relief and increasing official development assistance from developed countries.

Poverty is the most crucial plague of our times. It is commonly agreed that in order to reduce the proportion of people living on less than $1 a day, developing countries need to substantially accelerate their economic growth by carefully opening their markets. The standard rationale is that trade liberalization improves efficiency in the allocation of scarce resources, enhances economic welfare and contributes to long-term economic growth. However, while there might well be long-term gains from opening their markets, liberalizing economies are likely to face some short-term adjustment costs. This is because, as economies open up, a country's imports use existing channels, while its new exports opportunities often come from different sectors that have yet to sufficiently develop production capacity.

The international community recognizes the importance of trade for development through initiatives, such as Aid for Trade, Financing for Development and, most importantly, the World Trade Organization (WTO) Doha Round of trade negotiations. It is estimated that the global annual welfare gains from trade liberalization would be in the order of $90 billion to $200 billion, of which two thirds would accrue to developing countries.1 This could help lift 140 million people out of poverty by 2015.2

Trade and economic growth. In the last decade, trade has helped trigger strong growth in developing countries, whose share in the global trade has increased from 29 per cent in 1996 to 37 per cent in 2006 and whose exports have consistently been growing at a faster rate than those of developed countries. This has stimulated growth in export revenues of developing countries. At the same time, gross domestic product (GDP) per capita, one of the most relevant indicators of MDG progress, has increased by more than 16 per cent over the past five years in Africa, West Asia and Latin America (see table above). This has led to significant increases in employment and investment levels. The strong growth in exports from developing countries has, to a large extent, been due to the steady reduction of global tariffs as barriers to trade. On average, world tariffs have declined from 11 per cent in 2000 to 7 per cent in 2006 (see Figure 1). However, there is still evidence that developing countries face disproportionately high tariffs and trade barriers on products of export interest for them (see Figure 2). For example, in 2005, developing countries' agricultural exports faced, on average, a tariff of 8.9 per cent. Developed countries still impose tariffs on imports from developing countries that are twice as high as those from developed countries.1

In Africa, Mauritius -- one of the most open economies in sub-Saharan Africa -- exemplifies how trade can be a strong instrument for achieving the MDGs. Its traditional exports, such as sugar and textiles, have been sustained by trade policies that have allowed the country to adapt to international competition and develop value-added services. Mauritius' GDP growth reached an impressive average of 6 per cent per year after implementing an export-oriented strategy in 1996. Other successful initiatives have been initiated in Rwanda, where coffee exports have fuelled economic development, and also in Kenya, where cut-flower exports have seen a growth rate of 35 per cent annually over the last 15 years, sustained by trade incentives.

Coping with trade liberalization. Considering these success stories, should developing countries confidently rush towards liberalizing their economies? The answer is that they must be more cautious towards dashing to trade competition. Economic research today recognizes that the relationship between trade openness and growth is more complex than a simple causation. Trade liberalization does not automatically increase trade, let alone growth. The impact of trade openness depends on national context, rather than on the application of a theoretical demonstration.3The reality is that trade liberalization has different effects on poverty in different countries, depending on a wide range of factors, including macroeconomic stability, infrastructure and the financial sector. It is quite clear that trade alone will not help the developing world reach the MDGs and that the international community must significantly increase its efforts to cope with trade liberalization and establish certain conditions for growth to take place in all countries. Developing countries have to be better prepared before entering the global market.

Developing countries should develop or expand their supply capacity before opening up to global competition. They will need technical and financial assistance to benefit from the opportunities that trade opening provides. For this reason, the international community has launched the Aid for Trade initiative, which has been designed to help developing countries build their supply capacity by developing infrastructure investments, productive capacity investments and transition assistance. This will, for example, help Haitian rice producers or Kenyan flower producers to export their products to international markets.

To minimize unemployment distress from the open markets transition, developing countries also need to develop social safety nets. As developing countries liberalize, workers in sectors without competitive advantage will face unemployment. There is thus a need to reallocate workers to the newly growing sectors, which implies education, training policies and unemployment benefit programmes. In the short term, trade reform will also decrease government tariff revenues, reducing social spending particularly needed to face the rise in unemployment. The international community should therefore assist developing countries in addressing these adjustment costs, one of the reasons why the United Nations system insists on integrating all development policies into the National Development Strategy of each developing country. To conclude, in the words of Bono, co-founder of the "One" campaign against poverty, trade reform is not about charity, but about providing developing countries the necessary tools to achieve the MDGs. Trade is an important instrument to accelerate economic growth and reduce poverty. However, trade openness has to come with comprehensive reforms in line with each country's specificity and degree of development. The international community has acknowledged these issues in the last few years. United Nations action in social development is therefore crucial in helping developing countries profit from the growth opportunities provided by trade.

Notes

Target 17.11: Significantly increase the exports of developing countries, in particular with a view to doubling the least developed countries’ share of global exports by 2020. Indicator 17.11.1: Developing countries’ and least developed countries’ share of global exports (Tier I)

Trade is recognized as a key factor for poverty reduction and economic growth in the 2030 Agenda . SDGSustainable Development Goal target 17.11 aims to significantly increase the exports of developing countries, with a particular view of doubling the LDCs’ share in global exports by 2020. Even before the COVID-19COVID-19 is an infectious disease caused by the strain of coronavirus SARS-CoV-2 discovered in December 2019. Coronaviruses are a large family of viruses which may cause illness in animals or humans. In humans, several coronaviruses are known to cause respiratory infections ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). The most recently discovered coronavirus causes coronavirus disease COVID-19 . pandemic

Commonly described by the WHO as ‘the worldwide spread of a new disease’, no strict definition is provided. In 2009, they set out the basic requirements for a pandemic: • New virus emerges in humans • Minimal or no population immunity • Causes serious illness; high morbidity/mortality • Spreads easily from person to person • Global outbreak of disease.

The US Centre for Disease Control uses a similar approach, but with a reduced set of criteria. It is very difficult to gauge whether the spread of a disease should be termed an outbreak, epidemic or pandemic. In other words, when to declare a pandemic isn’t a black and white decision .

, the prospects of the target being achieved were bleak. The share of merchandise exports for LDCsLeast developed country since 2011 had been hovering around just one per cent and amounted to only 1 per cent in 2021. In comparison, the indicator averaged 42 per cent in the same period for developing economies as a group.

In 2020, amid the economic fallout from the COVID-19 pandemic, the LDCs as a group registered their worst economic growth since the early 1980s. LDCs’ merchandise exports are estimated to have dropped by 6.1 per cent in 2020, and their exports of services by more than 35 per cent. The decline of LDC’s exports was largely due to the terms-of-trade effect. In volume terms, LDCs’ merchandise exports were down 4 per cent, compared to 5.5 per cent for world trade.

Although several LDCs have broadened their export base, as many as 38 of them remain dependent on exports of commodities, like copper, cotton, and oil. Exports of commodities represent more than 70 per cent of merchandise exports of LDCs. The sharp decrease in commodity prices during the pandemic, such as oil and minerals, hit African commodity-dependent exporters particularly hard1. The value of African merchandise exports declined by 17.5 per cent in 2020, more than the drop in world exports (-7.2 per cent).

The large dependence on trade as a driver of their economic growth, small domestic markets and low levels of diversification increase the vulnerability of these countries to external shocks (see Fostering productive capacities to graduate with momentum). The COVID-19 health crisis has temporarily slowed down the contribution of trade to the achievement of SDGsSustainable Development Goal, such as poverty alleviation, food security, and decent jobs. Although developing countries and LDCs experienced a rebound in trade in 2021, with growth of exports amounting to 30 per cent and 25 per cent, respectively, they continue to face additional challenges due to the 2022 war in Ukraine.

Greater challenges to world trade are posed by the war in Ukraine

In 2021, world merchandise exports rose by 26.3 per cent compared with 2020 and reached a record high of US$22.3 trillion, exceeding their pre-COVID-19 level by 17 per cent. Meanwhile, trade in servicesIn the international trade in services context, services are understood as the result of a production activity that changes the conditions of the consuming units or facilitates the exchange of products or financial assets . Following the balance-of-payments classification, trade in services refers to manufacturing services, repair services, transport, travel, construction, telecommunications, computer services, financial services, insurance, intellectual-property related and other business services, as well as personal and cultural services, and government services. rose by US$860 billion to reach US$6 trillion, which was still below pre-pandemic levels.

However, this upward trend should be met with increasing uncertainty due to the conflict in Ukraine and the trade and financial sanctions imposed on the Russian Federation, as well as the lockdowns related to COVID-19 in China in the first half of 2022. The war in Ukraine has led to “a huge cost in human suffering and is sending shocks through the world economy,” UNCTAD Secretary-General, Rebeca Grynspan, said in a statement on the situation in Ukraine . The war has caused immediate disruptions to global trade and is likely to additionally impact its structure in the longer term. In the short-term, price effects and shortages are spilling over into economies more dependent on Ukrainian and Russian exports, especially food products, fuels, and fertilizers.

Lower-income countries, in particular, are most exposed to price fluctuations and supply shocks in agri-food markets. On average, more than 5 per cent of the import basket of the poorest countries consist of products that are likely to face price hikes resulting from the ongoing war in Ukraine. The share is below 1 per cent for richer countries. In 2018–2020, LDCs imported US$1.4 billion of Russian wheat (29 per cent of their total) and another $0.5 billion from Ukraine (10 per cent).

Russia also accounts for a quarter of global natural gas exports, one fifth of the global coal market and supplies more than 10 per cent of global crude oil. The hikes in fuel prices and disruption of supplies will negatively impact net oil importers, in particular, heavily indebted countries poor countries, and a majority of CISCommonwealth of Independent States countries. According to the IMFInternational Monetary Fund estimates, an oil price hike of 5$ per barrel is expected to deteriorate trade balances of these countries by more than 1 per cent of GDPGross domestic product (GDP) is an aggregate measure of production, income and expenditure of an economy. As a production measure, it represents the gross value added, i.e., the output net of intermediate consumption, achieved by all resident units engaged in production, plus any taxes less subsidies on products not included in the value of output. As an income measure, it represents the sum of primary incomes (gross wages and entrepreneurial income) distributed by resident producers, plus taxes less subsidies on production and imports. As an expenditure measure, it depicts the sum of expenditure on final consumption, gross capital formation (i.e., investment, changes in inventories, and acquisitions less disposals of valuables) and exports after deduction of imports . .

Tourism-dependent developing countries are likely to be greatly impacted by the war in Ukraine. The most exposed are SIDSSmall island developing states (SIDS) were recognized as a distinct group of developing countries at the Earth Summit in Rio de Janeiro in June 1992. More information on UNCTAD official page., in particular, those with a high share of Russian visitors, such as Maldives or Seychelles. The war is therefore expected to compound the devastating effects of the COVID-19 pandemic on the tourism sectors of these countries with all the higher impact on development as tourism has been one of their main and rare engines of growth over the last decades.

Overall, the United Nations Task Team for the Global Crisis Response GroupOn 14 March 2022, UN Secretary-General António Guterres established of a Global Crisis Response Group on Food, Energy and Finance (GCRG) to coordinate the global response to the widespread impacts of the war in Ukraine. (GCRGOn 14 March 2022, UN Secretary-General António Guterres established of a Global Crisis Response Group on Food, Energy and Finance (GCRG) to coordinate the global response to the widespread impacts of the war in Ukraine.) estimated that 1.7 billion people in 107 economies are severely exposed to at least one of the crisis’ three global channels of transmission – rising food prices, rising energy prices, and tightening financial conditions. Of these 1.7 billion people, 553 million are already poor, and 215 million are already undernourished .

Trade openness of developing economies and LDCs

As shown in Figure 1, LDCs’ trade openness, expressed as the ratio of the sum of exports and imports of goods and services to GDP, has been consistently lower than in other developing economies. The drastic decline in world trade had a disproportional impact on LDCs which already entered the pandemic period as minor players in world trade. The LDCs’ trade openness dropped by almost 16 per cent in 2020, compared to the previous year, from 52 per cent to around 43 per cent. This is twice more than in other developing economies, excluding LDCs, which recorded a decline of more than 8 per cent for the same period (see Figure 1).

Figure 1. Trade openness index

Source: UNCTADstat .

Notes: This index measures the relative importance of international trade in goods and services (sum of exports and imports) relative to the domestic economic output of an economy. Economy groups refers to the April 2022 classification as specified in .

Current trends of trade in developing economies

Between 2017 and 2019, trade in developing economies was vigorously recovering from the trade downturn in 2014-2016. This was offset by the economic impact of the pandemic in 2020, when trade in goods and services decreased by 7 per cent and 25 per cent, respectively. In 2021, trade rebounded sharply and reached US$11.2 trillion for developing economies. Trade in goods exceeded its pre-COVID-19 level and reached US$9.6 trillion. Trade in services, however, still falls short of pre-pandemic levels, despite estimated 16.7 per cent growth in 2021 .

Figure 2. Trends of goods and services trade in developing economies

(Millions of United States dollars)

Source: UNCTADstat .

Developing countries’ performance with respect to SDG 17.11.1

The evaluation of progress towards SDG target 17.11, aiming to significantly increase the exports of developing countries, and to double the LDCs’ share of global exports by 2020, is difficult to achieve. One of the measurement challenges relates to the choice of the baseline year. While the agreed default year is 2015 for key SDGs indicators , longer time-series' are often required to get a more comprehensive overview of the underlying dynamics and issues relating to achievement of particular SDGs, such as 17.11.1.

Performance as to SDG target 17.11 does vary considerably with the selected baseline year, used to calculate the change over time, at both country and group levels. A baseline year is a reference point in time against which progress in the future is measured. For example, if 2015 is considered as a baseline, the target to increase LDCs’ share in global trade, in 2021, translates into a 0.17 percentage point reduction. If 2010 were used, we would see a 0.04 percentage point decrease (see table 1).

Table 1. Evolution of LDCs' and developing economies' share of global trade

(Different baselines scenario, in percentage)

  Alternative baselines
Share of global trade (percentage)2020 Change from baseline
(percentage points)

Group of economies	Measure	2010	2015	2020	2021	2010-2021	2015-2021	2020-2021
LDCs	Service exports	0.60	0.74	0.74	0.61	0.56	-0.04	-0.05
Goods exports	1.03	0.97	1.04	1.03	0.00	0.06	-0.01
Total exports	0.94	0.91	0.94	0.93	-0.01	0.01	-0.01
Developing economies	Service exports	25.62	27.80	25.59	26.40	0.78	-1.40	0.81
Goods exports	39.73	42.34	43.03	43.93	4.19	1.59	0.89
Total exports	36.76	38.91	39.01	40.14	3.39	1.24	1.13

Source: UNCTADstat .

Another measurement hurdle to consider is the composition of LDCs which varies over the years. LDCs graduation is expected to accelerate and several LDCs are scheduled to exit least developed status in the coming years. Vanuatu has already done so and several others (Bhutan, Angola, Sao Tomé and Principe, Solomon Islands, etc.) follow suit . explored the implications of the changing group composition for assessing progress towards the SDG target. Should rates of change be calculated using the original composition of LDCs or developing economies in 2010 or 2015, the selected base year, or applied to the group as it is composed in the latest year for which data are available? Some soon-to-graduate countries have only a marginal contribution to the group performance, and whether they are included or not will have minor impact. However, the weight of some other countries, like Bangladesh, is considerable (see Map 1) and will significantly weight on the performance of the group as a whole.

Map 1. Developing countries’ share of global exports of goods and services

(Percentage of total trade)

Source: UNCTADstat .

Several LDCs sharply expanded their share of global trade from 2010 to 2021. Two LDCs, Tuvalu and Rwanda, substantially increased their shares of global exports of goods. Tuvalu doubled its share from 0.01 per cent in 2010 to 0.02 per cent in 2021, and Rwanda increased its share by 4.7 times, from an exceedingly small base of 0.001 per cent in 2010 to 0.006 per cent in 2021. Viet Nam’s share of world exports of goods grew from 0.47 per cent in 2010 to 1.51 per cent in 2021. Bangladesh doubled its share of total services exports from 0.06 in 2010 to 0.12 in 2021. Its share of total exports of goods also increased in the same period, from 0.09 to 0.20.

Developing economies’ and LDCs’ participation in world trade

Over the last two decades, developing economies have recorded a notable increase in their share of world trade in goods and services. Developing countries’ share in world exports has risen from 36.8 per cent in 2010 to 39.7 per cent in 2013, but has stagnated ever since, increasing only slightly to 40.1 per cent in 2021. LDCs’ share in world exports of goods and services has hovered around 1 per cent since 2011 and stood at 0.93 per cent in 2021. The outbreak of the COVID-19 crisis caused LDCs’ share of world exports to fall to 0.94 per cent in 2020, compared with 0.98 per cent in 2019, a drop of 4 per cent. Developing countries’ share of global exports of goods and services registered an increase of 0.1 percentage points in 2020 compared to the previous year. In 2020, trade in services for both developing countries and LDCs declined by more than trade in goods. As a result, these countries’ shares of global trade in services declined by 16.5 per cent and 30 per cent, respectively (see Figure 3).

Figure 3. Developing economies’ and LDCs’ share in global exports (SDG 17.11.1) of goods and services, 2010-2021

Source: UNCTADstat .

Note: Statistics on trade in services are preliminary, annual estimates based on the most recent quarterly figures (BPM6). Statistics on trade in goods are estimates based on Comtrade, international and national sources.

China, EU27 and the United States of America are the top trading partners of LDCs

In 2020, developing economies shipped most of their exports to the United States of America (US$1.4 trillion), China (US$1.1 trillion) and other Asian economies. The value of merchandise exports of developing countries to the EU27 in 2020 amounted to almost US$1 trillion. For LDCs, the top export destinations in 2020 were the EU27 (US$34.1 billion), China (US$38.9 billion) and the United States of America (US$14.8 billion).

In 2020, LDCs in Africa and Haiti delivered goods worth US$28.8 billion to China, more than to any other economy in the world (see Figure 4). Asian LDCLeast developed country exports were oriented towards China and the United States of America, amounting to US$11.4 billion and US$9.9 billion, respectively. The exports of LDCs in Asia to the EU27 amounted to US$22.9 billion in 2020. Intra-regional trade is also high for LDCs from East Asia and the Pacific, and low but rising for LDCs from most other regions .

Figure 4. Top 5 partners for LDCs in merchandise exports

(Ranked by 2020, US$ billions)

Source: UNCTADstat .

Notes: The country groupings are based on the geographic regions defined under the Standard Country or Area Codes for Statistical Use (known as M49) of the United Nations Statistics Division .

China’s rising importance in global trade

In the last twenty years, China has become a major player in global trade. Its share in world exports of goods increased from 4 per cent in 2000 to 15 in 2021 (see Figure 5). To compare, the share of the United States of America in global exports of goods amounted to 8 per cent, Germany to 7 per cent, and Japan to 3 per cent in 2021. Between 2000 and 2021, China’s share of total imports of goods expanded rapidly from 3.4 per cent to almost 12 per cent.

China’s exports not only proved to be resilient to trade tensions with the United States of America, but recovered faster than those of most other countries from the COVID-19 pandemic, already surpassing pre-pandemic levels by mid-2020. The successful mitigation strategies employed by China in the beginning of the pandemic allowed it to reopen its supply chains ahead of other countries and orient manufacturing capacity towards the products for which global demand was rising. In 2021, China’s share in global exports of goods rose by two percentage points, and in global imports of goods by more than one percentage point, compared with 2019.

Figure 5. China’s share in world trade

Source: UNCTADstat .

In 2020, China was the largest export destination for 38 countries, and the largest partner for imports for 51 countries, including the United States of America and Japan, for which the share of China in total exports/imports amounted to 20 per cent or more. Its share of total exports and imports of goods of developing countries rose to 34 per cent and 29 per cent, respectively.

Over the last two decades, China has become an important source of supply for many products, from precision instruments and industrial machinery to computers and smartphones. In 2020, high-skill and technology intensive manufactures constituted about 40 per cent of Chinese exports of manufactured goods, or 7.8 per cent of the world exports of this group of products (see Figure 6).

Figure 6. China’s share in exports of manufactured goods, by degree of manufacturing

Source: UNCTADstat .

Enhancing trade diversification in developing countries and LDCs

LDCs’ merchandise exports are mainly focused on primary products and simple manufactures, especially textiles and clothing. The concentration, as measured by the Herfindahl-Hirschman Index2, increased from 2001 to 2008, and since then, has gradually declined, reaching 0.18 per cent in 2020, compared to 0.52 per cent in 2008, (see Figure 7). Guinea-Bissau, Chad, Angola and South Sudan are the four African LDCs with the highest concentration index, approaching or even exceeding an index value of 0.9 in 2020, which indicates that their trade is concentrated in a very few products. Guinea-Bissau is highly dependent on trade in fruits and nuts, Chad, South Sudan and Angola on petroleum.3 Among Asian LDCs, Yemen, which top exports product is crude petroleum, had the highest export concentration indexThis index measures, for each product, the degree of export market concentration by country of origin. It tells us if a large share of commodity exports is accounted for by a small number of countries or, on the contrary, if exports are well distributed among many countries. The index ranges from 0 to 1 with higher values indicating more market concentration . in 2020 (0.70) . Diversifying strategic economic sectors of LDCs, such as food and health sectors, and empowering both production and services, such as banking, retailing, and public services with high-level of digitization, represent possibilities for these countries to build more resilient and sustainable economies .

Developing economies’ exports concentration index in 2020 stood at 0.09. Exports are most concentrated in Africa and Oceania. The export mix is more varied in the developing economies of Asia, where Turkey, Thailand and India are the most diversified countries in the region. In developing America, Mexico, Panama and Guatemala recorded the lowest concentration index in 2020.

Figure 7. Product concentration index of exports in LDCs and developing economies

(Percentage)

Source: UNCTADstat .

Notes: The country groupings are based on the geographic regions defined under the Standard Country or Area Codes for Statistical Use (known as M49) of the United Nations Statistics Division . An index value closer to one indicates that a country’s exports or imports are highly concentrated in a few products. On the contrary, values closer to zero reflect a more homogeneous distribution of exports or imports among a series of products.

In 2020, manufactured goods accounted for about 73 per cent of total merchandise exports from developing economies. The share of fuels has reduced from about 22 per cent in 2010 to 10 per cent in 2020. Food accounted for 8 per cent of total exports of developing economies, followed by ores, metals, precious stones and non-monetary gold (around 8 per cent).

The structure of exports by product group has changed significantly in LDCs and developing economies over the last ten years (see Figure 8). In 2020, manufactured goods accounted for more than 37 per cent of total exports in LDCs – a notable increase from approximately 19 per cent in 2010. The biggest exporters of manufactured goods in 2020 were Asian LDCs. Bangladesh, Cambodia and Nepal received 70 per cent or more of their export revenues from exporting manufactured goods in 2020. Ores, metals, precious stones and non-monetary gold formed the second largest product group in 2020 (about 27 per cent), while in 2010 they accounted for around 17 per cent in LDCs’ exports. The share of fuels dropped in 2020 to approximately 19, compared to 51 per cent in 2010. The proportion of food items in exports increased from around 9 to 14 per cent during the same period.

Figure 8. Export structure by product group in LDCs and developing countries

Source: UNCTADstat .

Notes: For the composition of product groups please refer to .

The country groupings are based on the geographic regions defined under the Standard Country or Area Codes for Statistical Use (known as M49) of the United Nations Statistics Division .

COVID-19 crisis seriously impacted trade in services

Before services were severely affected by the COVID-19 pandemic, growing services exports was a general trend across all economic regions, but mainly benefiting developed economies. In 2021, this group still accounted for 74 per cent of all traded services. With US$1.59 trillion worth of services exported in 2021, developing economies accounted for only 26 per cent of the global services market. 2021 recorded an increase of 17 per cent in exports of services compared to 2020 after contracting by 18 per cent in 2020 .

Among broad service categories, travel, the most prominent sector in developing economies’ exports in 2019, was most severely affected in 2020. Exports of travel services dropped from US$583 billion in 2019 to US$186 billion in 2020, a third of the previous value. The recovery of travel services in 2021 was relatively weak: developing countries exported an estimated US$200 billion in the travel sector. Trade in transport declined to a lesser extent and amounted to some US$300 billion in 2020 for developing economies. In 2021, demand for international transport was high after the pandemic disruptions. Prices went up and developing countries recorded a substantial transport exports growth of 45 per cent, largely attributable to Asian exporters. Grouping together other services – including telecommunications, computer, insurance, financial, IP-related, and other business services, etc. – their exports were slightly higher in 2020 than in 2019. Rising thereafter by 15 per cent, they reached an estimated US$936 billion in 2021. This represented almost 60 per cent of total services supplied internationally by developing economies. Many of these services can be traded remotely and some – like telecommunications and computer services - were highly demanded during lockdowns and social distancing.

LDCs continue to lag behind other groups of countries in services exports. Their share amounted to approximately 0.6 per cent of total services exports in 2021, a drop of around 28 per cent compared to 2019. Exports of personal, cultural and recreational services have been the most dynamic sector in LDCs’ services exports. They grew, on average, by over 11 per cent annually between 2010 and 2020. In the same period, notable annual average increases were recorded for charges for the use of intellectual property, transport, and travel services (11 per cent, 8 per cent, and 2 per cent, respectively). In the same period construction services and telecommunication services saw a downturn and registered a drop of about 3 per cent and 1 per cent, respectively (see Figure 9).

Figure 9. Annual average growth of services exports in LDCs, by service category, 2010-2020

Source: UNCTADstat .

LDCs and other developing economies have a revealed comparative advantage4 in exports of travel services. For LDCs the index reached 2.1 in 2020, LDCs have also a comparative advantage in exporting transport services (1.7). The index for other developing countries excluding LDCs was larger than one in travel services (1.3), transport sector (1.3), and telecommunications, computer, and information services (1.1) (see Figure 10).

Figure 10. Revealed comparative advantage in services exports, 2020

Source: UNCTAD calculations based on data from UNCTADstat

Notes: The revealed comparative advantage is measured as the proportion of a country group’s exports by service category, divided by the proportion of world exports in each category. A country or region is considered to have a revealed comparative advantage for a product or sector if the index is greater than one.

Notes

1. A country is considered to be export-commodity-dependent when more than 60 per cent of its total merchandise exports are composed of commodities.
2. The Herfindahl-Hirschman Index (HHI) is a measure of market concentration. A higher index value indicates a more concentrated export structure.
3. Products classification refers to three-digit level of SITCStandard International Trade Classification. The commodity groupings of SITC reflect (a) the materials used in production, (b) the processing stage, (c) market practices and uses of the products, (d) the importance of the commodities in terms of world trade, and (e) technological changes. Revision 3.
4. The revealed comparative advantage is measured as the proportion of a country group’s exports by service category, divided by the proportion of world exports in each category.

References

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