Logo
Munich Personal RePEc Archive

The underdevelopment of service industry in China: an empirical study of cities in Yangtze River Delta

Zheng, Jianghuai and Zhang, Lili and Wang, Yu (2010): The underdevelopment of service industry in China: an empirical study of cities in Yangtze River Delta. Published in: Frontiers of China's Economics , Vol. 6, No. 3 (July 2011): pp. 416-448.

[thumbnail of MPRA_paper_33125.pdf]
Preview
PDF
MPRA_paper_33125.pdf

Download (864kB) | Preview

Abstract

In contrast to the global average level, we find that service industry in China is underdeveloped. Its development level is rather low compared with not only developed countries at the same level of GDP per capita in the history, but also other similar developing countries at present. We define the phenomenon as “mystery of development deviation” between service industry and overall economy and set up a theoretical model to propose a hypothesis called “manufacturing cost disease” caused by service sector. This paper studies the influence of economic activity density on labor productivity in service industry by using the data of urban agglomerations in Yangtze River delta because of service industry’s concentration in the cities of. The results indicate that increase of labor productivity in service sector is driven by capital investment and “mystery of development deviation" is rooted in “manufacturing cost disease”. Service industry’s output increase exhibits significant characteristics of decreasing returns to scale. Therefore, productivities of both service and manufacturing sectors will remain low and the economy will fall into a complete stagnation, when manufacturing sector is unable to continue expanding. To eliminate this deviation, the pattern of industrialization and urbanization driven by capital investment must be changed. Expansion of producer services is also important, as well as increasing densities of human capital and foreign investment.

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.