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The rise of the service sector in the global economy

Author

Listed:
  • Owusu, Solomon

    (UNU-MERIT, Maastricht University)

  • Szirmai, Adam

    (UNU-MERIT)

  • Foster-McGregor, Neil

    (UNU-MERIT)

Abstract
The paper takes a two-pronged approach to examine the implications of the rapid rise of the service sector in the economies of the world. First, it analyses tertiarization in the global economy touching on key issues such as Baumol's hypothesis of a stagnant service sector, the contribution of the service sector to aggregate productivity growth, and the potentially positive contributions of services to other sectors. The second half of the paper focuses on tertiarization trends in sub-Saharan Africa, representing the role of the service sector in low-income economies. Using a long series of sectoral employment and output data, IO tables and multiple statistical analysis, we find that perceptions of services as stagnant and productivity resistant do not apply to all service sub-sectors. Productivity growth in modern, dynamic, and tradable services is equal to or higher than that in manufacturing and other sectors. These service sectors are innovative and might act as new or alternative engines of growth alongside manufacturing. The manufacturing sector in Africa still generates the strongest multipliers, including to market services. However, much of the manufacturing linkages are captured by foreign countries. While the multipliers in market services are relatively lower than those of manufacturing, they are comparable to those in many other regions of the world economy and more of the gains are captured by domestic firms which could encourage a self-reinforcing pattern of market service development. We also find robust evidence of strong inter-sectoral linkages between the service sector and manufacturing. Given the sector’s mutually reinforcing interaction with the manufacturing sector, the growing service sector could potentially play a significant complementary role in the prospects for industrialization of Africa. But this potential remains to be realized.

Suggested Citation

  • Owusu, Solomon & Szirmai, Adam & Foster-McGregor, Neil, 2020. "The rise of the service sector in the global economy," MERIT Working Papers 2020-056, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:unumer:2020056
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    File URL: https://unu-merit.nl/publications/wppdf/2020/wp2020-056.pdf
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    More about this item

    Keywords

    Service Sector; Sub-Saharan Africa; Global Economy; Structural Change; Technological Change; Baumol’s Hypothesis;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • N17 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Africa; Oceania

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