The Role of Services Exports in Economic Growth: A Comparative Study of India and China

Abstract

Services exports are growing much faster than merchandise exports and can promote economic growth by improving resource efficiency, boosting productivity growth, facilitating innovation, and technological advances, and diversifying the economy. In this context, this study examines the role of services exports in economic growth in China and India using data from 1980 to 2021. The choice of India and China is based on their recent export performances in services. Accounting for endogeneity issues and structural break, the study finds that merchandise and total and modern services exports promote economic growth in the long and short run, while traditional services have only short-run effects. Results from Robust Granger causality provide evidence of two-way causality between modern services and economic growth, validating the services export-led growth hypothesis. Further liberalization, integration of services with the manufacturing sector, and long-term investment in human capital are required to sustain higher services export growth.