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Technology Shocks, the Service Sector and Economic Growth

Mitra Thakur, Gogol (2016): Technology Shocks, the Service Sector and Economic Growth.

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Advances in ICTs as well as financial developments have greatly increased the scope for joint utilisation of various industrial goods and services. For example, consumption of many durable goods like telecommunication equipment (e.g. mobile sets), various electronic products, computer hardware and automobiles leads to joint purchases of services such as telecommunications, software services, insurance and other financial services. In this paper, we propose a specification for demand interlinkage between industry and the service sector, indicative of such developments, wherein final demand for service not only depends on industrial output but also on the relative price of service. This specification implies that a labour productivity increase in the service sector, say due to adoption of ICTs, can generate enough demand to increase both the growth rate in the economy and the relative size of the service sector if demand for service per unit industrial output is sufficiently elastic with respect to its relative price.

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