This post was originally published in Voxeu.org.
Services have long been the main source of growth in rich countries. We argue that services are now the main source of growth in poor countries as well. We present evidence that services may provide the easiest and fastest route out of poverty for many poor countries.
For more than 200 years, it was argued that economic development and growth was associated with growth of the labour-intensive manufacturing sector (Baumol 1967, Kaldor 1966, UNIDO 2009). Services were considered as menial, low-skilled, and low-innovation (McCredie and Bubner 2010). But today, services can be among the most dynamic sectors in an economy. The policy question is whether this is true even in poor countries.