International trade in developing economies

SDG indicators
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)


Target 8.9: By 2030, devise and implement policies to promote sustainable tourism that creates jobs and promotes local culture and products.
Indicator 8.9.1: Tourism direct GDP as a proportion of total GDP and in growth rate (Tier II)

Trade is recognized as a key factor for the 2030 Agenda, including poverty reduction and economic growth -—
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. SDG target 17.11 aims to significantly increase the exports of developing countries, and in particular with a view to doubling the LDCs’ share in global exports by 2020. This target has now been missed. Even before the COVID-19 pandemic, the prospects of this target being met were implausible. As will be seen below, there has not been a substantial increase in the share of exports for LDCs or for developing economies in general since 2012. LDCs’ exports have been hit hard after the outbreak of the pandemic, with the volume of exports declining by 16.9 per cent during the second quarter of 2020, year-on-year basis, the worst performance since the drop recorded in the second quarter of 2009 (16.3 per cent). Although LDCs’ exports volume index decreased only by 2.9 per cent in the first quarter of 2021, recovery from the economic impact of the COVID-19 pandemic is not in sight yet.

The COVID-19 pandemic has disrupted global trade and poses additional challenges for developing economies and other vulnerable economies in fulfilling SDGs.

COVID-19 pandemic poses a significant challenge to the world trade

The pandemic could lead to a “lost decade” for sustainable development, states the most recent Financing for Sustainable Development Report -—
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. The crisis has temporarily slowed down the contribution of trade to the achievement of SDGs, such as poverty alleviation, food security, and decent jobs. Yet, reinforcing global trade is essential for a recovery for many developing countries and in particular for LDCs.

World merchandise exports rose by just over 50 per cent over ten years, from 2009 to 2019, reaching US$19 trillion in 2019. 2020 got off to a rocky start due to the COVID-19 pandemic. The value of global merchandise exports dropped to US$17.6 trillion in 2020, falling by 7.5 per cent compared to 2019. Many COVID-related confinement measures affected global trade especially during the second quarter of 2020, when the export volume index declined of 16.9 per cent, year-on-year -—
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In 2019, global services trade was valued at US$6.1 trillion, recording an increase of almost 70 per cent from ten years earlier -—
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, and in 2020, it fell down to almost US$5 trillion, a drop of almost 20 per cent from 2019.

Trade in goods and services is particularly important for SIDS and LDCs, for which its share in GDP accounts, on average, around 45 per cent and up to 30 per cent of GDP, respectively -—
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Small and vulnerable economies have been hit hard because of their dependence on trade as a driver of economic growth, their small domestic markets and low levels of diversification all of which increase their vulnerability to external shocks – as the global financial crisis demonstrated.

It is likely that resource-rich developing countries will also be affected by the strong reduction in commodity prices (see figure8 below), caused by reduced international demand for such goods and a drop in the production of transformed manufactured goods (see Towards sustainable industrialization and higher technologies) -—
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Global exports are still dominated by goods, with a 78 per cent share in 2020. Exports of goods accounted for 82 per cent of total exports in developing economies in 2019 and have become more diversified with manufactured goods representing the largest item of merchandise exports (70 per cent of total goods exports in 2019). LDCs, on the contrary, are highly dependent on exports of commodities, which represent more than 70 per cent of their merchandise exports. High dependence on commodity exports increases the vulnerability of LDCs to global shocks, such as the COVID-19 crisis.

However, similarly in non-commodity dependent LDCs, such as in Bangladesh, Cambodia and Haiti, that rely mostly on low-skilled and labor-intensive manufacturing exports, the economies are at risk of contracting sharply if global demand for manufacturing exports remains depressed in 2020 and beyond. In 2020, the spread of COVID-19 shadowed the world’s economy: FDI fell by 42 per cent worldwide, and international tourist arrivals were 1 billion fewer – worst year in tourism history ever -—
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.This is especially detrimental to developing economies that rely heavily on tourism for employment and revenue generation.

In the first half of 2020, global trade volumes in goods and services showed sharp declines. With such a painful economic slump, an estimated 88 million to 115 million more people were pushed into extreme poverty in 2020, with the total rising to as many as 150 million people by 2021; an equivalent of 255 million full-time jobs was lost -—
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. Though the post-COVID-19 era has yet to come, world trade has started its recovery since the third quarter of 2020. In the first quarter of 2021, global trade volume was 4.9 per cent higher than in the first quarter of 2020. After the 2009 and 2015 recessions, it took 9 and 13 quarters for international trade to recover, respectively. The pandemic-induced recession for world trade bounced back after only four quarters. However, this recovery remains fragile and uneven.

The socioeconomic fallout of the pandemic may be a lot more devastating for LDCs than the health shock. Limited export diversification has heightened their vulnerability to the impact of the pandemic on global trade. International tourism remains at a standstill almost one year into the crisis, with severe impacts on employment in many LDCs. Manufacturing exports have improved more recently, but it is still too early to assess the consistency of the rebound. Falling prices of commodities as oil and gas have had a lasting impact on several LDCs -—
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. Hence, LDCs registered an annual decline of 10.3 per cent in merchandise exports in 2020, much less than the 22 per cent decline in 2009 after the 2008 global financial crisis -—
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Trade openness of developing economies and LDCs

As shown in figure 1, developing and developed economies’ trade openness indices are converging. LDCs’ trade openness, i.e. the ratio of exports and imports to GDP, has been consistently lower than in other developing economies. The global dip of 2009, associated with the financial crisis, was followed by a short recovery in trade openness for developing economies, but since 2011 their trade openness has drifted downward, bouncing back only slightly after 2016. In 2019, their trade openness index plummeted from 60.5 to 56.5, which is the lowest point ever seen since 2005.

From 2014 to 2017, LDCs experienced a persistent decline in trade openness with the index dropping from 59 to 47.9 per cent (see figure 1). From 2018 to 2019, trade openness dropped from 54.1 to 51.6 per cent.

Figure 1. Trade openness index
(Percentage)

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Notes: This index measures the relative importance of international trade in goods relative to the domestic economic output of an economy. Exports are given equal weight to imports. Economy groups refers to the April 2020 classification as specified in -—
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Current drift of trade in developing economies

After the 2008 global financial crisis and the more recent trade downturn in 2014-2016, developing economies have seen a strong recovery since 2017. This was offset by the economic impact of the pandemic in 2020. Goods trade in developing countries decreased at an annual rate of 2.4 per cent in 2019 and by 6.1 per cent in 2020 (figure 2). Trade in services grew by 3.2 per cent in 2019 and dropped by 24.8 per cent in 2020.

In 2019, total exports of goods and services amounted to US$10.4 trillion in developing economies and only US$9.4 trillion in 2020. Thus, in 2020, exports of goods and services decreased to US$8.0 trillion and US$1.4 trillion, respectively.

In 2020, developing economies’ trade fell by 9.5 per cent compared to a 7.5 per cent decline globally as the pandemic disrupted economic activity around the world. The disruptions will have profound implications for the most vulnerable economies, including developing economies and LDCs. However, some signs of recovery can be observed since the start of 2021. Global merchandise trade values and volumes and global services trade values look set to continue their recovery into the second quarter of 2021 after the sharp contractions experienced in the first half of 2020. In the second quarter of 2021, services trade is nowcast to continue to grow by 7.4 per cent from the previous quarter, compared with 11.6 and 4.7 per cent for merchandise trade values and volumes, respectively. -—
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Figure 2. Trends of goods and services trade in developing economies
(Millions of United States dollars)

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Developing countries’ performance with respect to SDG 17.11.1

The evaluation of progress towards SDG target 17.11, to significantly increase the exports of developing countries, and to double the LDCs’ share of global exports by 2020, requires a choice of a baseline year. According to the IAEG-SDGs -—
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, the default baseline year for each indicator should be 2015. However, some exceptions may be necessary to allow a longer review of trends.

Five years is hardly enough time to double the LDCs’ share of global exports. Therefore, for SDG 17.11.1, an earlier baseline year is arguably more appropriate. Yet, whatever the baseline is for the past 20 years, developing countries’ share of global exports has not increased significantly, nor has LDCs’ share doubled. However, at a country level, performances differ and will vary depending on the chosen baseline year (see map 1). The baseline selected for MDGs, for instance, was 1990 – ten years before their adoption in 2000. This gave time for countries to achieve progress and allowed for a more ambitious agenda. If a similar approach was applied to the SDGs, a comparable baseline (ten years prior to adoption) would be 2005.

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 economiesMeasure20052010201520202005-20202010-20202015-2020
LDCsService exports0.440.600.740.630.180.02-0.11
Goods exports0.761.030.971.030.270.000.06
Total exports0.690.940.920.940.250.000.02
Developing economiesService exports22.7927.7129.7927.955.170.24-1.83
Goods exports35.9742.8445.6846.1610.193.320.47
Total exports33.2239.6641.9442.098.872.440.15
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Another measurement issue to consider is the composition of LDCs. Several LDCs are likely to graduate from this status in the coming years. Vanuatu is now graduated from LDCs and according to the UNDESA -—
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, several others will follow after the end of the target year, 2020. -—
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has discussed the implications of the changing group composition for assessing progress towards the SDG target. Will the rates of change be calculated using the original composition of LDCs or developing economies at the baseline (say 2010/2011 or 2015), or the group as it is composed in 2020? Some soon-to-graduate countries have only a marginal contribution to the group performance, and whether they are included or not will have little impact, whereas the weight of some other countries is considerable, like that of Bangladesh (see map 1) and will have a significant impact on the performance of the group as a whole. Of course, the COVID-19 pandemic impacts are likely to delay the achievement to the target even further.

For the reasons outlined above, 2010 has been selected as a baseline for the scenario discussed in this chapter. Data for additional years are available also. Map 1 shows developing countries’ share of global exports of goods and services by country.

Map 1. Developing countries’ share of global exports of goods and services
(Percentage of total trade)
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Several countries doubled their share of global trade from 2010 to 2020. Viet Nam’s share of world exports of goods grew from 0.47 per cent in 2010 to 1.6 per cent in 2020. Its share of world exports of services also grew from 0.19 per cent to 0.45 per cent. Thailand almost doubled its share of world services exports (from 0.87 to 1.34 per cent), and the United Arab Emirates quadrupled their share of services exports (from 0.3 to 1.2 per cent). Bangladesh almost doubled their share of total services exports as well as total goods exports (from 0.13 to 0.20 per cent for goods and from 0.06 to 0.1 for services). However, the pandemic has ceased the increasing trends. In 2020, Viet Nam’s and Thailand’s shares of world service exports are estimated to fall to 0.14 per cent and 0.629 per cent. On the contrary, Bangladesh’s share in world’s services exports is likely to rise to approximately 0.127 per cent, though its share in world’s merchandise exports has decreased slightly to 0.19 per cent.

Developing economies struggle to keep pace with world exports

Over the last two decades, developing economies have recorded a notable increase in their share of world trade. Though the value of developing countries’ exports of goods and services has increased notably since 2000, since 2012 this growth has no longer outpaced the developed world. Developing countries’ share of global exports of goods and services has risen from 29.7 per cent in 2000 to 42.2 per cent in 2012 but has stagnated ever since to 41.5 per cent in 2019. If the baseline selected is 2015, there would be a 0.2 percentage point decrease by 2019. From 2010, developing economies’ share of global exports of goods and services has increased by 1.8 percentage points and, from 2005, 7.6 percentage points.

As far as exports of goods is concerned, developing economies’ share in world exports of goods has plateaued at around 45 per cent since 2012 (see figure 3). In 2019, developing economies’ share of world services exports (US$6.1 trillion) reached the highest point of about 30 per cent (US$1.83 trillion), yet in 2020, this figure fell to 28 per cent, primarily due to the COVID-19 pandemic. The highest regional share of world services exports was recorded by developing Asia and Oceania at more than 24 per cent in 2019. The top three services exporters are China (4.6 per cent), India (3.4 per cent) and Singapore (3.5 per cent). They account for more than 40 per cent of developing economies’ services exports.

Figure 3. Developing economies' shares of global exports (SDG 17.11.1) of goods and services
(Percentage)

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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.

LDCs are a small player in world trade with a 0.96 per cent share of global goods and services exports in 2020. The 2030 Agenda sets a target to double LDCs’ share in global exports by 2020. LDCs’ share of global exports of goods and services was 0.92 per cent in 2010, slightly below the 2020 level. Taking 2005 as the base, their share in global exports of goods and services increased by 0.3 percentage points from 0.66 per cent to 0.96 in 2019. LDCs have a long way to go before doubling their share, and the target was not reached by 2020.

In 2020, the value of merchandise exports from LDCs was US$172.6 billion, accounting for less than one per cent of world exports (0.98 per cent), signaling the failure of the 2020 target in doubling LDCs’ merchandise exports. Their share in world merchandise exports almost doubled from 0.54 per cent in 2000 (US$35 billion) to over one per cent in 2011-2013 (see figure 4). Since then, this trend has reversed slightly. LDCs’ share of global services exports has increased gradually to reach 0.80 per cent by 2019, but dropping again to 0.63 per cent in 2020.

Figure 4. LDCs' share of global exports (SDG 17.11.1) of goods and services
(Percentage)
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The key driver of export growth over this period (2000-2019) was the massive rise in the price of fuels, ores and metals, reflecting high demand in developing countries, most notably China. With 2005 taken as the baseline, the growth is more notable, 0.3 percentage points from 0.5 per cent to 0.8 in 2019 -—
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. However, in 2020, the massive fall in international trade negatively affected the price of commodities. The decline of the UNCTAD Commodity Price Index in 2020 in the second quarter of 2020 was comparable to the declines experienced in 2015 and 2016 When fuels are excluded, year-on-year changes are much more muted -—
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China, EU28 and the United States of America are the top trading partners of LDCs

In 2019, developing economies shipped most of their exports to the United States of America (US$1. trillion), China (US$1.1 trillion) and other Asian economies. The value of merchandise exports of developing countries to EU28 in 2019 amounted to almost US$1.3 trillion. For LDCs, the top export destinations in 2019 were EU28 (US$36.4 billion), China (US$679.8 million) and the United States of America (US$15.2 million).

By 2019, LDCs in Africa and Haiti delivered goods worth US$29.9 billion to China, more than to any other economy in the world (see figure 5). LDC exports in Asia were oriented towards China and the United States of America in 2018 and 2019. The importance of the European Union as a trading partner for LDCs in Asia has increased significantly since the turn of the century, with exports reaching US$53.4 billion in 2019. Intra-regional trade is also high for LDCs from East Asia and the Pacific, and low but rising for LDCs from most other regions.

As merchandise exports of LDCs are concentrated in a few markets, including those worst affected by the COVID-19 health crisis, which makes them vulnerable to decline in demand in these countries. For example, in 2019, Angola exported around 57.6 per cent of its merchandise to China, Benin around 41 per cent to India, Burkina Faso around 54 per cent to Switzerland, Haiti around 82 per cent to the United States of America and Rwanda around 65 per cent to the United Arab Emirates -—
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Figure 5. Top 5 partners for LDCs in merchandise exports
(Ranked by 2019, US$ billions)

Source: UNCTAD -—
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Finally, it's worth noting that the current health crisis has also challenged developing economies to boost their intra-regional trade and strengthen international trade agreements to harmonize their trade-related regulations, customs controls, and reduce both tariff and non-tariff barriers (see New protectionism versus inclusive trade).

Developing economies’ trade hit by the downswing of the Chinese economy

The coronavirus pandemic has instigated a global economic downturn the likes of which the world has not experienced since the Great Depression. GDP in the world's second largest economy – China, fell by 6.8 per cent year-on-year in January-March 2020 -—
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. In the first quarter of 2020, China’s exports dropped in volume terms by 11 per cent, year-on-year, but have been recovering since the third quarter of 2020. In the first quarter of 2021, China’s exports grew by 38.8 per cent from the low first quarter of 2020 -—
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. The economic consequences of the economic downturn in China were quickly felt in other economies.

China is a major player in international trade as a manufacturer and exporter of consumer products, and as a key supplier of intermediate inputs for manufacturing companies globally. Today about 20 per cent of global trade in manufactured intermediate products originates in China (up from 4 per cent in 2002). -—
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has analysed the UN Comtrade dataset for about 200 countries and 13 manufacturing sectors to measure each country’s and industry’s integration with the Chinese economy using the GLI of intra-industry trade.

According to this analysis, the economic downturn in China will lead to disruptions in GVCs and diverse spill-over effects across economic sectors and countries. The crisis may impact the supply of critical parts from Chinese producers, affecting economic output and trade in any country depending on their dependency of the Chinese economy. These impacts may spread faster than expected due to the common strategy of limited inventories and just-in-time production.

While Asian developing economies occupy the top of the list of countries most directly linked to China through GVCs, the effects would also be felt in Mexico (US$1.3 billion), Turkey (US$0.4 billion) and Brazil (US$0.08 billion). In Mexico and Brazil, the automotive industry is most directly linked with Chinese value chains, while in Turkey the sector taking the brunt of the Chinese downturn would be textiles and apparel. Considering the wide-ranging impacts, the quick recovery of the Chinese trade brought some good news.

LDCs’ export product mix becoming more diverse

The concentration of LDCs’ exports, as measured by the Herfindahl-Hirschman Index1, increased from 2001 to 2008. Since then concentration has gradually declined, converging with patterns typical of developing economies (see figure 6). Developing economies excluding LDCs have followed a similar trend. In other words, their export mix has become more diverse with a slight sustained set-back from 2016 to 2018 and a continued diversification in 2019.

South Sudan, Botswana, Angola and Guinea-Bissau are the four developing African countries with the highest concentration index, approaching or even exceeding an index value of 0.9 in 2019, which indicates that their trades are concentrated on a very few products. South Sudan Angola is highly dependent on trade in petroleum, Botswana on precious stones, and Guinea-Bissau on fruits and nuts.2 In 2019, LDCs as a group recorded an average index of 0.21. Yemen had a relatively high export concentration index in 2019 (0.42), the highest index among Asian LDCs -—
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. Of developing economies, the product mix of exports is most concentrated in African countries. The export mix is more varied in the developing economies of America, with Guatemala, Mexico and Panama recorded the lowest concentration index in 2019, and Asia, where Turkey, Thailand and China are the top three most diversified countries.

It is worth mentioning that diversifying the strategic economic sectors of LDCs, such as food and health sectors, and empowering both productions 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 -—
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Figure 6. Product concentration index of exports in LDCs and developing economies
(Percentage)

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Notes: 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.

The structure of exports by product group has changed significantly in LDCs and developing economies over the last ten years (see figure 7). In 2019, manufactured goods accounted for 36.7 per cent of total exports in LDCs – a notable increase from 2009 (23.1 per cent). However, only six LDCs—Bangladesh, Cambodia, Haiti, the Gambia, Nepal and Lesotho—received more than 50 per cent of their export revenue from exporting manufactured goods in 2018. Fuels formed the second largest product group in 2019 (26 per cent), while in 2009 they accounted for over half of the exports. The share of ores, metals, precious stones and non-monetary gold increased from 12 per cent to 20.1 per cent in the ten years from 2009 to 2019. The proportion of food items in exports also increased from 10.2 to 13.7 per cent during the same period.

Figure 7. Export structure by product group in LDCs and developing countries
(Percentage)

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Notes: For the composition of product groups please refer to -—
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In 2019, manufactured goods accounted for about 70 per cent of total merchandise exports from developing economies – almost as much as from developed economies. The share of fuels has reduced from 21 per cent in 2009 to 14.4 per cent in 2019. Food continues to be strongly represented in the exports of some economies in South America and Eastern Africa in particular, and ores, metals, precious stones and non-monetary gold in the exports of several Southern and Western African and Central Asian economies.

Figure 8. Commodities price index and LDC’s total exports
(Percentage)

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Notes: Total all products refer to (SITC 0 to 8 + 961 + 971). Primary commodities, precious stones and non-monetary gold refer to (SITC 0 + 1 + 2 + 3 + 4 + 68 + 667 + 971).

LDCs are oriented towards commodity exports, accounting for more than 63 per cent of their goods exports. The periods when LDCs’ exports declined more strongly than world exports (2008-2009 and 2014-2016) coincided with falls in commodity prices.

During the period between 2000 and 2020, LDCs recorded a first peak of exports in 2008 with more than US$151 billion followed by a strong decrease caused by the financial crisis in 2008-2009. The second peak was recorded in 2013 with almost US$194 billion. Thus, the global financial crisis of 2008 did not cause sustained declines (even though the commodity prices was connected with the financial crisis). Nevertheless, LDCs’ exports seem to follow commodity price index trends (see figure 8). The decline in commodity prices has caused a more persistent decrease since 2014. The current situation with the COVID-19 pandemic should play out similarly, as the increase of commodity price index (56.1 in in March 2021) -—
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will impact LDCs’ exports. LDCs will need to diversify their exports to reduce their exposure to such crises.

Services exports had been increasing across economies

Before services were severely affected by the COVID-19 pandemic, the growth of services exports was a general trend across all economic regions, but mainly benefiting developed economies. In 2019, this group still accounted for 69.7 per cent of all traded services. With US$1.86 trillion worth of services exported in 2019, developing economies took only 30 per cent of the global services market. LDCs’ share amounted to almost 0.81 per cent of total services exports.

2019 recorded an increase of 23 per cent in exports of services compared 2015 -—
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. This trend might be explained by factors, such as the increasing commercialization of intangibles, the larger role of services in global value chains and the gradual liberalization of this sector.

Among broad service categories, travel has the most prominent role in developing economies’ exports. At more than US$583 billion, it accounted for 31.4 per cent of the services supplied internationally by developing economies. Transport is also an important export sector for the developing world, worth US$374 billion in 2019. Grouping together other services, including insurance and financial services, and business and intellectual-property-related services account for US$825.0 billion of developing economies’ exports.

Smaller in dollar value than transport and travel, but linked to travel, – exports of personal, cultural and recreational services have been the most dynamic sector in LDCs’ services exports. They grew, on average, by over 13 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 (11.5 per cent, 9.7 per cent, and 6.8 per cent, respectively). Of the broad services items (Other service sector) which accounts for almost 45 per cent of the total traded services in the region in 2020, only construction services saw a downturn in the same period (-4.6 per cent).

Figure 9. Annual average growth of services exports in LDCs, by service category, 2010-2020
(Percentage)
Source: -—
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Travel is the only type of service export where LDCs and other developing economies have a revealed comparative advantage3. The revealed comparative advantage of travel services for LDCs reached 1.75 in 2019 and was 1.3 for other developing economies (see figure 11). The value is also slightly greater than 1.34 for LDCs’ transport services.

Figure 10. Revealed comparative advantage in service exports, 2019
(Proportion)

Source: UNCTAD calculations based on data from UNCTAD -—
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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.

Exports of services requiring proximity worst hit in the time of COVID-19

There are four different modes of supply for traded across borders: (mode 1) cross-border trade mainly for services transacted via the internet; (mode 2) consumption abroad covering mainly health and education service for foreigners; (mode 3) commercial presence which is specific to locally-established entities like hotels, banks and construction; and finally (mode 4) movement of natural persons which involve for example foreign IT consultants or health workers4.

Figure 11 shows the distribution of global service trade by mode of supply. The data refer to 2017 but an indication about the mode of supply of services worldwide. More than US$10 billion are exported via mode 1 and 3. Naturally, a big part of services provided by mode 1 continue to be exported in the time of COVID-19, but these services, including telecommunications, computer and information services account for less than 10 per cent of total service exports of developing countries.

The three other modes require proximity between importers and exporters. Thus, the related service sectors will be severely affected and most likely will take longer to recover.

As mentioned above, travel and transport are key sectors in driving developing countries’ service exports, accounting for more than 50 per cent of total service trade of the group. Those sectors are delivered mainly via mode 2, 3 and 4 and covering services such as education, travel, tourism and associated hotels, and restaurant services, as well as air passenger transport services and construction and other business services that require the movement of skilled and unskilled professionals across borders.

Figure 11. Composition of global services trade by modes of supply, 2017
(US$ billions)
UNCTAD calculations based on data from WTO (2020b).

Travel and transport restrictions due to COVID–19 are likely to negatively affect the trade in services in 2020. Possible scenarios point to declines of 60 per cent to 80 per cent in international tourist arrivals in 2020. According to -—
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, countries with the highest number of reported cases of COVID-19 (see In focus: COVID-19) account for about 55 and 68 per cent of global inbound and outbound tourism expenditure, respectively. The Joint Report -—
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warns that the effect of the crisis will spill out and be significantly more devastating for countries heavily dependent on tourism.

Tourism makes a significant contribution to sustainable development

One of the most important contributors to international trade in services is tourism. In addition to the direct service itself, tourism has large multiplier effects that extend to the domestic economy. It promotes growth and employment in a multitude of economic sectors, such as transportation, hotels and restaurants, retail trade, financial services and cultural services. It also attracts domestic and foreign investment and promotes the development of the private sector. For this reason, UNCTAD has recognized that touristic services, if properly harnessed, can become an important engine for inclusive and sustainable economic growth in developing countries (UNCTAD, 2017).

For many developing countries, tourism is one of the most important exports and an essential source of revenue. Figure 12 shows that, on average, tourism contributes to the economy at comparable rates in developing, developed and transition economies. However, for LDCs and especially SIDS, this sector is responsible for a larger share of total economic activity. During 2017-2019, tourism accounted for, on average, 12 per cent of SIDS’ GDP. Moreover, the contribution of tourism to the economy seems to be increasing over time.

Figure 12. Direct contribution of tourism to GDP by country group, average
(Percentage of total GDP)

Source: UNCTAD calculations from -—
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Note: Averages include only countries with available data. Data cover approximately 40 per cent of SIDS’ total GDP, and about 50 per cent of LLDCs’ total GDP. The coverage is over 90 per cent for developing economies and 100 per cent for developed economies.

As mentioned above, tourism has a multiplier effect on the domestic economy through several channels. One of these, depicted on map 2, is through its direct contribution to employment creation. In addition to SIDS, many countries in all geographic regions, including South-East Asia (Cambodia, Philippines), North Africa (Tunisia, Morocco), the Caucasus (Georgia), the Americas (Belize, Uruguay, Mexico), Europe (Croatia, Montenegro, Iceland, Greece) and Oceania (New Zealand), benefit greatly from the employment generated across the tourism industries. Overall, current estimates place tourism’s direct contribution to worldwide GDP at 3.3 per cent and to global employment at 3.9 per cent (World Travel & Tourism Council data gateway, 2021)5.

Map 2. Direct tourism contribution to employment, 2019
(Percentage of global employment)

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Despite its increasing economic weight, touristic service supply is still relatively concentrated. Around 43 per cent of all international tourists were still travelling to European countries in 2019. As illustrated in figure 14, other regions of the world received a comparatively small share of international tourist arrivals. This is the case of Oceania, Central Asia, Sub-Saharan Africa and Latin America and the Caribbean, regions where many developing economies are located, including many LDCs. In many regions of the world, tourism still has unexploited potential as a means of development.

Figure 13. International tourist arrivals, distribution by region, 2019
(Percentage)

Source: UNCTAD calculations based on data from UNWTO (UNWTO, 2021b).

However, this is gradually changing. Worldwide tourist arrivals increased by almost 50 per cent between 2010 and 2018. While tourists travelling to Europe and Northern America increased by only 41 and 32 per cent, respectively, over the same period they increased by 93 per cent in South and South-East Asia and by a remarkable 243 per cent in Central Asia. The only developing region that did not benefit from this dynamism in tourism was Sub-Saharan Africa, where the number of tourists fell by nine per cent over the period.

Tourism remains vulnerable to global and regional risks

SDG target 8.9 aims to develop and implement policies to promote sustainable tourism that will result in more jobs and support of local cultures and products. However, even if tourism can bring substantial revenues and economic opportunities, it can also bring challenges for sustainable development. For example, tourism can help finance the preservation of historical and environmental treasures, but if poorly managed could also have reverse effects -—
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. Tourists also directly contribute to greenhouse gas emissions and climate change in many ways: through transportation by air, rail, road and sea, and by consumption of goods and services whose production is intensive in energy, water or other resources.

Tourism is a labour-intensive sector that could provide employment for a large share of people, including women and other underrepresented groups. It is also a sector with a high concentration of small and medium enterprises, self-employment and family businesses. For these segments, tourism-related economic activity could provide sustained livelihood opportunities and paths towards poverty reduction for women and local communities in developing countries -—
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However, as revealed by the precipitous decline in international travel and tourism in the aftermath of the COVID-19 outbreak, this is a pro-cyclical sector with high elasticity to global and regional economic trends. In addition, it is very sensitive to perceived security, health and environmental risks. Figure 14 shows the daily evolution of commercial flights during the first half of 2021 in comparison with 2019 and 2020. COVID-19 pandemic severely hit the global commercial aviation because of lockdowns and bans restricting flights across the globe. As of the end of June 2021, the number of commercial flights worldwide was down by 74 per cent compared to the same period of 2019. However, commercial flights record a steady recovery in recent months with an average positive growth of 10 per cent in June 2021 compared to the previous month.

Indeed, recent figures already show a catastrophic year for the sector. Tourist arrivals to Thailand fell by 52 per cent in the first four months of 2020, compared to the same period in 2019 (UNCTAD calculations based on data from -—
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. Over the same period, the Republic of Korea recorded a fall of 62 per cent in the number of visitor arrivals -—
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These figures show that, while international tourism could provide substantial opportunities for many developing economies, it remains exposed to high global and regional volatility.

Figure 14. Worldwide number of commercial flights, 2019-2021
(Number of flights)

Source: Flightradar24 (2020)

Considering the vulnerabilities of developing economies and especially LDCs exposed by the COVID-19 crisis and the longer-term implications, international support will be essential not only for responding to immediate recovery needs, but also for accelerating structural transformation, trade support and assistance and development of resilience to external shocks.

Notes

  1. The Herfindahl-Hirschman Index (HHI) is a measure of market concentration. A higher index value indicates a more concentrated export structure.
  2. Products classification refers to three-digit level of SITC Revision 3.
  3. 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.
  4. Examples of the four Modes of Supply (from the perspective of an “importing” country A) (WTO, 2020c)
    • Mode 1: Cross-border
      A user in country A receives services from abroad through its telecommunications or postal infrastructure. Such supplies may include consultancy or market research reports, tele-medical advice, distance training, or architectural drawings.
    • Mode 2: Consumption abroad
      Nationals of A have moved abroad as tourists, students, or patients to consume the respective services.
    • Mode 3: Commercial presence
      The service is provided within A by a locally-established affiliate, subsidiary, or representative office of a foreign-owned and — controlled company (bank, hotel group, construction company, etc.).
    • Mode 4: Movement of natural persons
      A foreign national provides a service within A as an independent supplier (e.g., consultant, health worker) or employee of a service supplier (e.g. consultancy firm, hospital, construction company).
  5. WTTC also calculates that the total contribution of tourism to the economy. This includes, in addition to the direct impacts, the indirect contribution (tourism-related investment spending, government collective spending and domestic supply chain purchases of goods and services) plus the induced contribution (spending of those directly and indirectly employed by the tourism sector). According to these estimates, the total contribution of tourism is 10.4 per cent of GDP and 9.8 per cent of employment. For details on the methodology of these estimates, see WTTC and Oxford Economics (2018).
  6. A country is considered to be export-commodity-dependent when more than 60 per cent of its total merchandise exports are composed of commodities.

References

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