A Thirlwall’s Law Application to International Trade in Services

Abstract

The international trade in services has grown exponentially, both in developed and developing countries, outpacing the manufacturing growth. According to the literature, there are two waves of growth in the services sector: A first wave in developing countries specializing in traditional services; a second wave in developed countries and producers of modern services. Using the multisectoral Thirlwall’s law model for 90 countries, modern services have the highest income-elasticity. The role of relative prices is not significant. Also, the two waves of growth are verified. Countries that are more competitive in international services grow less relative to global growth but have a higher level of development. In less developed countries with a higher share in tourism exports, the higher the surplus of the balance of services, the lower the current account balance.