Technology Shocks, the Service Sector and Economic Growth

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

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Service sector; Information and Communication Technologies (ICTs); Demand-led growth; Two sector growth models
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O14 - Industrialization ; Manufacturing and Service Industries ; Choice of Technology; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models

References

Baumol, W. J. (1967), “Macroeconomics of unbalanced growth: the anatomy of urban crisis”, The American Economic Review 57.3, pp. 415–426.

De, S. (2014), “Intangible capital and growth in the new economy: implications of a multi-sector endogenous growth model”, Structural Change and Economic Dynamics 28.1, pp. 25 –42.

Dutt, A. K. (1992), “‘Unproductive’ sectors and economic growth: A theoretical analysis”, Review of Political Economy 4.2, pp. 178–202.

Eichengreen, B. and P. Gupta (2013), “The two waves of service-sector growth”, Oxford Economic Papers 65.1, pp. 96–123.

Hirsch, M. W., S. Smale, and R. L. Devaney (2004), Differential Equations, Dynamical Systems and An Introduction to Chaos, London, UK and San Diego USA: Academic Press.

Kaldor, N. (1989), “Equilibrium theory and growth theory”, in F. Targetti and A. P. Thirlwall (eds.), The Essential Kaldor, London: Duckworth, pp. 411–433.

Oulton, N. (2001), “Must the growth rate decline? Baumol’s unbalanced growth revisited”, Oxford Economic Papers 53.4, pp. 605–627.

Pugno, M. (2006), “The service paradox and endogenous economic growth”, Structural Change and Economic Dynamics 17.1, pp. 99–115.

Qiang, C., G. Clarke, and N. Halewood (2006), “The role of ICT in doing business”, in Information and Communication for Development 2006: Global Trends and Policies, Washington, DC: World Bank, pp. 57–85.

Rowthorn, R. E. and R. Ramaswamy (1997), Deindustrialization: causes and implications, Working Paper WP/97/42. International Monetary Fund. url: http: //www.imf.org/external/pubs/ft/wp/wp9742.pdf.

Sasaki, H. (2007), “The rise of service employment and its impact on aggregate productivity growth”, Structural Change and Economic Dynamics 18.4, pp. 438–459.

Sasaki, H. (2012), “Endogenous phase switch in Baumol’s service paradox model”, Structural Change and Economic Dynamics 23.1, pp. 25–35.

Vincenti, C. D. (2007), “Baumols disease, production externalities and productivity effects of intersectoral transfers”, Metroeconomica 58.3, pp. 396–412.

World Development Indicators (2015), The World Bank. url: http://wdi.worldbank.org/tables.