Thanks to remote work, the digital-friendly services sector has largely remained immune to the covid-19 pandemic, unlike the manufacturing industry. This could be good news for the developing world: a new research article suggests that in the post-covid world, emerging economies can prosper even without having to manufacture goods.
India’s model of services-led growth, as opposed to China’s dependence on manufacturing, can give hope to emerging economies, says the VoxEU article, by Richard Baldwin and Rikard Forslid. They argue that the new normal of remote working has lowered the barriers of cross-border trade of services. This has boosted “telemigration", or working for offices in one country while sitting in another.
The authors say wage differences and talent shortages will inevitably make companies in the services sector turn to foreign-based online workers. They cite the example of the services sector in developed economies of the West, which are increasingly turning to remote workers from countries such as India, the Philippines and Bangladesh for cheap labour. The blurring language barriers through machine translation and use of tools such as Zoom and Skype have made it easier for foreign companies to tap into the labour.
As emerging economies lose their edge in manufacturing due to automation, they should rethink their path to development and growth, the authors say. Success in India’s services-based model will be based on different factors than in the manufacturing model, and so it needs a change in mindset and development strategies.
The authors give three recommendations for such a strategy: India, not China; service value chains over manufacturing global value chains; and devices, cities and training, rather than industry, factories and technology.
However, while the prospect of services-led development is promising, developing countries need to focus on factors such as digital infrastructure and legal and regulatory frameworks.
Also read: Covid 19, globotics, and development
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