Abstract
Ajitava Raychaudhuri and Prabir De have compiled a relevant collection on the growing importance of services trade for India and its implications to economic growth and inequality. The book consists of 12 chapters that provide an in-depth discussion of trends in services trade in the aggregate and the sectoral dimensions across higher education, health and transportation services in India. The overarching theme of the book is that the removal of barriers to services trade is welfare-enhancing. It essentially covers two important aspects. First, the challenges to liberalization of services trade across sectors by means of case studies. Second, it makes the case for increasing services trade and consequent growth that would reduce poverty and inequality. Relevant primary surveys complement the secondary empirical analysis. Although there are significant limitations to the empirics, the book offers good insights into service trade barriers for India and the impact of the removal of such barriers to the Indian economy. The authors have also dealt with a significant dimension concerning the impact of services trade liberalization on poverty and inequality. A good understanding on data difficulties in services trade is demonstrated and more relevant sources are employed. Let us discuss the major findings and their relevance to literature for each chapter.
Following the introductory chapter, the book contains two chapters that discuss the theoretical underpinnings of services trade and its emerging patterns in developing countries (Chapters 2 and 3). The approach puts forth theoretical findings, reinstating the salient features of the services trade liberalization. Chapter 2 makes the case that services trade liberalization is welfare-enhancing for developing countries, which is facilitated by means of input outsourcing. It engages the reader as a self-contained chapter that puts forth a concise theoretical exposition for testing its implications empirically. Further, it lays the foundation for further empirical analysis in subsequent chapters. Chapter 3 discusses the rising asymmetry in services trade between developed and developing countries. This is undertaken by calculating the Revealed Comparative Advantage (RCA) indices across countries. While the developing countries demonstrate comparative advantage in labour-intensive sectors, the Indian scenario witnessed spectacular performance in Information Technology (IT) and IT-enabled services. The authors emphasize on better policy formulation in order to bridge the trade gap in services between developed and developing countries along with building export capacity for the latter ones. However, one wonders what the implications are for India’s sectoral RCAs and its relation to sectoral export capacities. This question seems to have been answered partially in Chapter 5.
The book then moves to a discussion on India’s profile and competitiveness in services trade (Chapter 4). The authors emphasize that the country’s output generation has undergone a major shift to services with a 16.9 per cent per annum growth from 1991 to 2008. But this was unaccompanied by corresponding employment-creation. A significant focus is devoted on India’s significant achievement of comparative advantage in the technology-intensive sectors, such as, financial and computer services, while having decreasing comparative advantage in the labour-intensive sectors as transport and travel services.
Chapter 5 analyzes barriers to the services trade by presenting services trade facilitation index. Both quantity and price-based measures are discussed in detail from the literature. It makes a well-defined attempt at understanding barriers to services trade by combining infrastructural bottlenecks and regulatory barriers. Authors use Principal Components Analysis (PCA) to construct the Service Trade Facilitation Index (STFI). It asserts a relevant distinction between policy-induced market distortions and supply-side barriers. The index does well in capturing supply-side bottlenecks, which in combination with more comprehensive measures of regulatory barriers can prove to be useful in future empirical research analyzing the effects of services trade protection. However, this is dealt to a certain extent in Chapter 6, which brings together the linkage between India’s services trade flows and its barriers using a panel dataset in the gravity framework. Recognizing that these linkages are multiple and complex, this chapter emphasizes the importance of studying barriers at the sectoral level. The fact that India’s comparative advantage in services exports have switched to more technology-intensive products lends credence to an important finding advocated by the authors that India’s services exports would benefit more from exporting to countries with higher per capita incomes.
Chapters 7, 8 and 9 assess an area which is of keen interest for researchers working on trade protection in services. They deal extensively with barriers to services trade and attempt to measure the gains from removing such barriers. The focus is on trade in higher education services, health services and transportation services for India.
In an attempt to deal with higher education services trade, the authors in Chapter 7 have undertaken a primary field survey across 14 premier institutes in India, covering the courses, tuition fees structures and cost of living, and the analysis was based on panel data modelling. The most striking results include cost advantages of studying in India in spite of poor quality infrastructure, whereas the secondary data highlights the existence of both country-specific and market-induced barriers. The authors highlight the eminent need to deal with other modes supported by the qualitative data. Also, coordinated policy responses are needed to assert positive signals to potential students.
In Chapter 8, the barriers to health services are examined, again using a primary study that covered 190 foreign patients, combined with a secondary econometric analysis. The study identifies obtaining the visa as major obstacle to trade in health services. The findings from the panel regression assert the associated waiting times as the most significant perceived barrier for potential consumers. The authors also substantiate two important observations that have been discussed in literature. One is the increasing trend in health services trade among the member countries of the South Asian Association for Regional Cooperation (SAARC); the other includes large potential gains from Mode 4 services trade in health services.
Chapter 9 examines transportation services, wherein the major findings include dependence of port performance on overseas cargo, market concentration in port sector, oligopolistic trends and an underutilization of existing port capacities. Liberalization of services trade in transportation is advocated as an important facilitator of foreign investment and integration of economies. The authors emphasize integration of policy-making for manufacturing and port facilities to exploit economies of scale, which is a crucial aspect covering India’s transportation and logistics with repercussions for its effective participation in value chains.
In Chapters 10 and 11, the authors remind us of the critical relationship between services trade, poverty and inequality. This has not been dealt with rigour in the past on account of lack of data. The authors undertake an empirical analysis of trade barriers in services on poverty and inequality in Chapter 10. It shows only a marginal impact of services exports on poverty and inequality. They assert that poverty has responded effectively to growth and services exports over time, but the same does not hold for inequality. This makes policies and programmes on inclusive growth an imperative for pro-poor targeting. Chapter 11 makes the case for certain broad policy measures to maximize comparative advantage for India’s skilled IT labour force. This includes quality of education to bridge the gap between skilled and unskilled labour, better training and employment opportunities, effective capacity building and a targeted distortion-free trade policy. The authors argue that the most challenging task of balancing structural shifts for India is to minimize short-term externalities from globalization.
Finally, Chapter 12 summarizes findings from all the chapters. It also points to important dimensions of further research. This comprises causality and linkage between services growth and poverty reduction. Additional primary surveys on workforce and output are asserted as means to complement secondary analysis which can be very useful to study underlying linkages and policy avenues for further growth.
I conclude this review by touching on four aspects. First, what is the overall theme of the book? The book is a well-written and informative read wherein issues in service trade are examined and the corresponding policy implications are discussed in considerable detail along with the likely outcomes. Second, what differentiates it from previous writings? The authors have put together a very useful measure of services trade barriers, but there is scope to add further regulatory dimension to the indices. The nature of the primary research that adds light to the findings from the econometric analysis undertaken by the authors differentiates this study from previous ones on this subject. Third, who should read this book? The findings and implications should be of particular interest to students pursuing higher studies in international trade, academicians and policy makers as an essential reference on the set of issues influencing services trade in India. Finally, what should be the agenda for future research on this theme? The scope for further research should include a comprehensive examination of implications for India’s sectoral comparative advantages and corresponding export capacities, an in-depth assessment of the regulatory dimension to service trade barriers and drawing sectoral implications from the linkages between services growth and poverty reduction.