Can the Service Industry Be the Next Growth Escalator?

Homi Kharas, Ejaz Ghani, and
Ejaz Ghani Economic Advisor, South Asia - World Bank
Arti Grover
Arti Grover
Arti Grover Senior Economist, Finance Competitiveness and Innovation - World Bank

December 12, 2011

The world is experiencing a third industrial revolution with services trade being at the forefront of this revolution. Services are characterised by growing tradeability, increasing technological sophistication, and lower transport costs. Modern services can now be unbundled and splintered in a value chain just like goods and they can be electronically transported internationally through satellite and telecom networks. The number of services that can be transported digitally is constantly expanding – processing insurance claims; call centres; desktop publishing; compiling audits; completing tax returns; and transcribing medical records. In a not-too-distant future, patients at home will be able to speak with their doctors and students will access high-quality education via virtual classrooms. Labour matching is increasingly done online and platforms like Odesk can connect employers and employees across national boundaries.

Over the last three decades, services have contributed more to growth, in both developed and developing countries, than the goods sector. In both sectors, growth in developing countries has been faster than in developed countries, but catch-up has been faster in the goods sector.

Although conventional wisdom has been that labour-intensive manufacturing creates the most jobs in developing countries, recent data suggest otherwise; employment growth has been most rapid in the services sector. In developed and developing countries alike, labour is being shed from both agriculture and manufacturing.

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