What we’ve been reading about the services sector and economic transformation

In this month’s reading list, we examine the role of the services sector in boosting jobs and economic transformation.

Throughout history, industrialization has been synonymous with development. Manufacturing-led development delivered the twin gains of productivity growth and large-scale job creation for the relatively unskilled. Underlying these were economies of scale, access to large international markets, innovation, and intersectoral linkages, combined with the ability to leverage relatively unskilled labor with capital. However, the trend of premature deindustrialization and the spread of automation technologies associated with Industry 4.0 has raised concerns that the development model based on export-led manufacturing seen in East Asia will be harder for hitherto less-industrialized countries to replicate in the future. Can services-led development be an alternative?

Services in the past typically required a simultaneity of production and consumption that precludes accessing larger markets. And their more limited ability to use capital to leverage labor productivity limits both scale economies and incentives to innovate. Conventional wisdom is therefore pessimistic about the prospects for services-led development.

This month’s reading list features the book “At Your Service? The Promise of Services-Led Development,” which tests this conventional wisdom with new evidence that demonstrates expanding opportunities for scale, innovation, and spillovers in the services sector owing to digitalization and growing intersectoral linkages. It also features publications that contribute to the small, but growing literature on the role of the services sector in economic development. Finally, there’s a selection of recent reports and working papers that discuss the broader jobs agenda in several African countries, China, and Uzbekistan, as well as articles on how COVID-19 is re-shaping labor markets.

The Services Sector, Jobs, and Economic Transformation

• The book “At Your Service? The Promise of Services-Led Development assesses the scope of a services-driven development model and policy directions that can maximize the model’s potential. (Nayyar et al., World Bank, September 2021)

Essential Readings

• In India Servitization appears to be a form of "premature deindustrialization," caused by manufacturers' inability to compete with imports, rather than structural transformation associated with a maturing manufacturing sector. (Grover & Mattoo, World Bank, June 2021)
• Does premature deindustrialization matter? The result suggests that similar characteristics of manufacturing that were previously thought to be unique for development (such as scale economies, exports, and innovation) can be found in services. (Nayyar et al., Journal of Globalization and Development, November 2021)
• This book offers suggestions on how to capitalize on the unique opportunity presented by the ongoing structural transformation toward a services economy in order to achieve long-term income growth, which promotes sustainable development. (Editors Helble & Shepherd, Asian Development Bank, July 2019)
• The Industrial Revolution in services: How new technologies have enabled firms to scale production across multiple locations dispersed across space. (Hsieh & Rossi-Hansberg, NBER, June 2019)
• Industrialization has been essential to reducing poverty historically. But today’s global and technological context implies that economic growth in developing countries is now possible only by raising productivity in smaller, informal services firms that employ the bulk of the poor and lower-middle classes. (Dani Rodrik, Project Syndicate, October 2021)
• Rethinking Deindustrialization: While most of the decline in manufacturing employment in Denmark from 1994 to 2007 can be attributed to firm exit and reduced employment at surviving manufacturers, a non-negligible portion is due to firms switching industries from manufacturing to services. (Bernard et al., Economic Policy, January 2017)

Broader Jobs Agenda

• Ghana rising: Driving sectoral, spatial, and technological transformations by creating an enabling environment for growth will help Ghana generate high quality jobs. (World Bank, November 2021)
• The findings show that there are economic benefits to upgrading several major regional corridors  in West Africa. (Mathilde Lebrand, World Bank, November 2021)
• In China, labor-intensive growth in agriculture was the main driver of rural poverty reduction, followed by the expansion of non-agriculture sectors, transfers from migrant workers and public transfers. (Lugo et al., World Bank, November 2021)
• In Kinshasa, Democratic Republic of the Congo, good quality jobs are scarce and female and young workers are more likely to be unemployed or underemployed. (Batana et al., World Bank, November 2021)
• Youth employment in Uzbekistan: Opportunities and challenges (Honorati & Marguerie, World Bank, August 2021)

COVID-19 Related Articles

• A new set of stylized facts on firm recovery, covering 65,000 observations in 38 countries. (Cirera et al., World Bank, October 2021)
• The combined backward and forward-looking rate of job reallocation has roughly doubled in the US and UK, and sales reallocation has risen, particularly in the UK. (Anayi et al., VoxEU, August 2021)
• Working for the most vulnerable people: Jobs and economic transformation in the face of COVID-19. (Samuel Munzele Maimbo, World Bank, November 2021)
• Four in ten Americans who currently work from home at least one day a week would seek another job if employers require a full return to business premises. (Barrero et al., VoxEU, July 2021)
• The COVID-19 pandemic has introduced huge numbers of employers and employees to remote work. How many of these newly remote jobs will go overseas? The paper offers a rough quantification. (Baldwin & Dingel, CEPR, October 2021)
• Government support measures implemented in response to the COVID-19 crisis may have adverse effects on competition and productivity growth since support went to less productive and larger firms, regardless of their pre-crisis innovation. (Bruhn et al., World Bank, November 2021)