At Your Service? The Promise of Services-Led Development

Manufacturing-led development has been the traditional model for creating jobs and prosperity. But in the past three decades, the services sector has grown faster than the manufacturing sector in many developing economies. In 2019, the services sector accounted for an average of 55 percent of GDP and 45 percent of employment in developing economies. As manufacturing’s share of economies across the development spectrum recedes, can the services sector help low- and middle-income countries catch up with high-income countries, while expanding good job opportunities? At Your Service? The Promise of Services-Led Development assesses the prospects for services-led development. Its findings and their implications are encouraging for the World Bank Group’s “better jobs for more people” Jobs and Economic Transformation agenda.

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The book finds that the services sector is increasingly driving economic transformation, despite policymakers’ focus on manufacturing. “Half of workers in low- and middle-income countries are currently employed in the services sector and they have become more productive since the 1990s, enabling income gains,” says Gaurav Nayyar, Senior Economist with the Equitable Growth, Finance, and Institutions Vice-Presidency and co-author of the book.

“This services-driven economic transformation is possible because of new opportunities for scale, innovation and spillover effects that made manufacturing more productive in the past,” says Elwyn Davies, Economist with the Equitable Growth, Finance, and Institutions Vice-Presidency and co-author of the book. The possibilities for remote delivery, as well as branching and franchising, increase opportunities for service providers to access larger markets. The use of digital technologies in business processes and the related expansion of intangible capital can drive innovation by complementing labor. Services also benefit other sectors, such as through being upstream enablers and downstream complements for manufactured goods.

“Countries can exploit these transformative opportunities from services, regardless of their level of industrialization”, says Mary Hallward-Driemeier, Senior Economic Advisor with the Equitable Growth, Finance, and Institutions Vice-Presidency and co-author of the book. For example, IT, professional, scientific, and technical services accounted for more than half of all services exports in Costa Rica, Ghana, India, Pakistan, and the Philippines. And the top 20 health tourism destinations in the world comprise many low- and middle-income countries, including China, Costa Rica, India, Jordan, Malaysia, Mexico, Thailand, and Turkey.

For policy makers, therefore, it isn’t a question of whether to support manufacturing or services, but rather a recognition that the potential for services to contribute to productivity and jobs is growing—and they should act to take advantage of it.

Endorsements

“An encyclopedic resource for understanding the services sector. Services dominate the world economy, yet they receive less attention than manufacturing and agriculture. This book should be required reading for everyone.”

-           Laura Alfaro, Warren Alpert Professor of Business Administration at Harvard Business School and Former Minister of National Planning and Economic Policy, Costa Rica

“Accelerated by the pandemic, growth models are shifting from manufacturing-based development towards services-based development. This book presents a key set of underappreciated facts about the role of services in development in recent decades. Clear, concise, and compelling, it is packed with facts, telling charts, and an analytic approach that is likely to change the profession’s view of service-led development. A must-read for scholars and policymakers alike.”

-           Richard Baldwin, Professor of International Economics at the Graduate Institute, Geneva, and Editor-in-Chief of VoxEU

“This carefully executed book shows that services increasingly boost productivity growth across all sectors, and as result can help to diversify exports and growth engines across the developing world. It signals a potential future that policy makers would ignore at their peril.”

-           Stefan Dercon, Professor of Economic Policy at the University of Oxford, and Policy Advisor to the Foreign Secretary, U.K. Foreign, Commonwealth & Development Office

"This book presents an impressive amount of very valuable data and analysis in an area where data are scarce, and attention is sorely needed. The authors' research examining differences across services sub-sectors in developing countries is sure to be invaluable to policy-makers looking to incorporate the service sector in their development strategies."

-           J. Bradford Jensen, McCrane/Shaker Chair in International Business at the McDonough School of Business at Georgetown University

“This book makes clear that the service sector should be a focus of efforts to boost development and economic growth. In economies at all income levels, the sector is large, growing, and—contrary to some perceptions—holds considerable potential for productivity growth. Building one of the most comprehensive sets of evidence ever produced on productivity in services, the book effectively lays out the case for greater attention to the sector’s potential among researchers and policymakers alike.”

-           Chad Syverson, George C. Tiao Distinguished Service Professor of Economics at the University of Chicago Booth School of Business