Introduction

The question in this theme chapter is: what is the impact of services policy reform on the welfare of poor households? As explained below, there is a variety of channels through which services can be provided, and it is important to consider the whole portfolio of options in order to identify the ways in which poor households might be affected. Hoekman (2006) reviews the nature of services trade liberalisation and its scope to generate welfare gains.

The framework adopted here is to combine a discussion of the nature of trade and investment in services, and the associated impediments to integration in the world economy, with a series of issues that Winters (2000a, 2000b) identified with respect to liberalisation more generally. These issues include:

• how reform affects prices and how these price changes are passed through the rest of the economy

• whether the reform will destroy currently effective markets or create new ones, allowing consumers access to new forms of services

• the nature of the second-round effects of these first two effects, and their particular effects on poor households

• the characteristics of the factors of production used in services production and the elasticity of their supply

• the impact of the reforms on government revenue

• whether the new business environment will be significantly riskier and how that will affect incentives for investment

• the links between reform and growth

• whether there are particular local effects to be taken into account

• whether any transitional unemployment will be concentrated among the poor households.

In the sections below, the chapter reviews these issues and their application to services reform. The focus of the discussion is the impact of domestic policy reform with respect to these issues. Also of interest to developing countries, and with great significance to poor households, is the effect of the liberalisation of the movement of people to provide services in other developed countries. In a separate section, the chapter considers the opportunities associated with this type of reform. However, before turning to the above issues, it is useful to review the nature of trade and investment in services.