Digital Transformation Powers Growth in Services Sector Across East Asia and Pacific: World Bank Report

"East Asia is already a manufacturing powerhouse. Today, new digital technologies are a source of innovation, jobs, and growth," stated Manuela V. Ferro, World Bank Vice President for East Asia and Pacific.

In a region traditionally synonymous with manufacturing dominance, digital technologies are revolutionizing economies in East Asia and the Pacific by transforming the services sector into a key driver of growth. A new World Bank report, Services Unbound: Digital Technology and Policy Reform in East Asia and Pacific, reveals how services are becoming the most dynamic component of these economies, outpacing manufacturing in multiple performance metrics.

The report highlights several transformative trends over the past decade:

Labor Productivity: Services have contributed more to labor productivity growth than manufacturing.

Export Growth: Services exports are expanding faster than goods exports.

FDI Trends: Foreign direct investment (FDI) in services has grown five times faster than in manufacturing in key nations, including China, Indonesia, Malaysia, the Philippines, and Thailand.

Women’s Employment: Services employ a higher proportion of women, with employment rates rising as economies grow.

"East Asia is already a manufacturing powerhouse. Today, new digital technologies are a source of innovation, jobs, and growth," stated Manuela V. Ferro, World Bank Vice President for East Asia and Pacific. “Governments can do more to unleash the power of services, such as promoting the digitalization of small and medium-sized firms to boost productivity.”

Digital Innovation and Economic Impact

The report provides concrete examples of how digital technologies and policy reforms are boosting economic performance:

In the Philippines, firms using software and data analytics achieved a 1.5% annual productivity increase between 2010 and 2019.

In Vietnam, liberalizing sectors such as transport, finance, and business services led to a 2.9% annual rise in value-added per worker from 2008 to 2016. Manufacturers leveraging these services saw an even higher 3.1% annual increase in labor productivity, benefiting small and medium enterprises (SMEs) in particular.

Call for Policy Action

The report emphasizes that while progress has been made, deeper reforms and enhanced international cooperation are essential to fully harness the potential of services in the digital age.

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

Recommendations for Unlocking the Services Potential

Encouraging Digitalization of SMEs: Governments should facilitate the adoption of digital tools and platforms to enhance productivity.

Enhancing Policy Reforms: Liberalizing key service sectors like finance, transport, and business services can significantly improve value-added contributions to GDP.

Investing in Human Capital: Training programs tailored to digital skills are crucial to align workforce capabilities with emerging demands in the services sector.

Strengthening International Cooperation: Regional collaboration on regulatory standards for digital services and data flows can promote seamless cross-border trade and investment.

Looking Ahead

The report envisions a future where digitalization, paired with robust reforms, drives a balanced and inclusive economic transformation. Services, with their capacity to create jobs, foster gender equality, and fuel innovation, are positioned to play a central role in the region's sustainable growth trajectory.

The findings underscore the urgent need for governments to focus on enabling policies, investments, and collaborations that empower the services sector, ensuring it becomes a cornerstone of economic resilience and development across East Asia and the Pacific.