Is Industrial Structure Moving from Manufacturing towards the Service Sector?: Cross-country Evidence

Sarbapriya Ray & Abhijeet Bag

Published: June 2021

Research findings suggest that the service sector’s growth, exports and gross fixed capital formation are having statistically significant favourable impact on GDP growth in six selected economies—India, China, the Republic of Korea, Japan, the USA, the United Kingdom—and in the world as a whole. The results obtained indicate that if the service and manufacturing sectors, exports and GFCF grow by 1%, growth of economies via GDP growth is accelerated by 0.6806% and 0.006461%, 0.0819% and 0.0245%, on average, respectively among the six selected economies (and the world as a whole), signifying that, although the contribution of the manufacturing sector is minimal, this sector is still essential. The estimates show increasingly robust impacts of exports, net investment in fixed assets and equipment and dominance of the service sectors to the GDP growth rates in the six economies examined. A cross-country analysis of panel data over a period of 29 years, from 1990 to 2018, for the same six countries and the world as a whole, using a random-effects model, finds that the stimulating force of economic growth has moved undeniably and steadily from the manufacturing sector towards the service sector due to the growing importance of the service sector observed in each of the six countries under our consideration over the period surveyed.

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