Services can help countries in the East Asia and Pacific break out of the middle-income trap

Services Drive Economic Growth in East Asia and Pacific

Washington DC, December 9, 2024 - In a region known for manufacturing, digitization is transforming services into the most dynamic part of many economies in the East Asia and Pacific region, according to new World Bank research.

The report, "Services Unbound: Digital Technology and Policy Reform in East Asia and Pacific," highlights that services have contributed more to labor productivity growth than manufacturing over the past decade. Services exports have outpaced goods exports, and foreign direct investment (FDI) in services has grown five times faster than in manufacturing in China, Indonesia, Malaysia, the Philippines, and Thailand. Additionally, services employ a higher proportion of women, with this trend increasing as economies develop.

"East Asia is already known as a powerhouse of manufacturing. Today, new digital technologies are a source of innovation, jobs and growth" said Manuela V. Ferro, World Bank Vice President for East Asia and Pacific."Governments can do more to unleash the power of services. For instance, they can encourage digitalization of small and medium-sized firms to increase productivity."

The report shows that digital technologies and a first wave of reforms are already boosting economic performance. For example, firms in the Philippines saw a 1.5% annual productivity increase from the use of software and data analytics between 2010-2019. In Viet Nam, liberalizing transport, finance, and business services led to a 2.9% annual increase in value-added per worker from 2008-2016. Manufacturers using these services experienced a 3.1% annual rise in labor productivity, with small and medium enterprises benefiting the most.

"Deeper domestic reforms and greater international cooperation on services liberalization and regulation can help countries benefit from digital technologies," said Aaditya Matoo, Chief Economist for the World Bank in East Asia Pacific. "That would unleash a virtuous cycle of increased economic opportunity and enhanced human capacity to power development in the region."