The Least Developed Countries' Services Waiver and the Stability of Least Developed Countries' Services Exports

The least developed countries (LDCs) are weakly integrated into the global trading system. To foster their participation in international trade in services, the Members of the World Trade Organization (WTO) adopted in 2011 a Decision ("LDC Services Waiver") that allows any WTO Member to offer preferential treatment to LDC services and service suppliers. This Decision became operational only from 2014, and is valid until 2030, or before 2030 for beneficiaries that lose the LDC status. The present analysis investigates whether the LDC Services Waiver Decision has been instrumental in dampening the volatility of LDCs' commercial services exports. We submit the theoretical hypothesis that by providing certainty to the access of trading partners' markets, and hence improving the predictability of such market access for LDCs' trading firms, the LDC Services Waiver could contribute to dampening the volatility of LDCs' commercial services exports. The analysis uses the difference-in-difference approach where the treatment group contains 38 LDCs and the control group contains 22 Low-income countries that are not eligible for the benefits of this Waiver. It covers the period from 2004 to 2019, with the treatment period (i.e., the period of operationalization of the LDC Services Waiver) running from 2014 to 2019. Based on within fixed effects and random-effects Mundlak estimators, the empirical exercise has provided support to the hypothesis that the LDC Services Waiver has been instrumental in dampening the volatility of total commercial services exports, and in particular the volatility of modern commercial services. Thus, meaningful preferences to LDCs, under the Services Waiver, would provide significant benefits to LDCs, including in terms of stability of services exports.