countries such as France, Germany and Japan the share of the service sector
exceeds 70 per cent, and in the UK today around 80 per cent of employment is
in the services sector.
Certain characteristics of service sector output make measurement and
analysis problematical. It is difficult to identify what constitutes the service
activity in any particular sector such as banking. Quality and productivity are
difficult to measure. Would a teacher who took on more students in a class be
raising their productivity levels or diluting their effort? (Banga, 2005). Market
prices are not available for publicly provided services such as education or
health so it is difficult to put a value on the output or consumption of those
services. Some worldwide growth in the service sector is illusory. Industrial
and other firms have increasingly used specialist sub-contractors to deliver
services they previously provided themselves, such as legal, accounting and
security. The practice of what Bhagwati (1984) called ‘splintering’ may lead
analysts to overestimate the decline of industrial relative to service-sector
output.
A surprising tale in recent economic history has been the rapid growth of
output and exports from the service sector in India. Between 1950 and 1980
‘normal’ structural change occurred in India, with industrial growth exceeding
that of agriculture and services. During the 1990s service growth was been
more than double that of industry or agriculture, or of overall GDP (Gordon
and Gupta, 2004:29) and after 2003 service sector growth touched 10 per cent
per annum. In 1990 low-income India’s service sector achieved very close to
the average share predicted by its income level, but by 2010 that share was
around 55 per cent of GDP which would be expected in an upper-middle
income country (Gordon and Gupta, 2004:7). In India the fastest-growing
service sector in the 1990s was business services (including IT) with growth
av eraging nearly 20 per cent per annum; other sectors such as telecommunica-
tions and banking also experienced rapid growth.
A policy case study: structuralism
Structuralists argue that the structural features of the economy do not passively
change with economic growth over time but are rather a key determinant of
economic growth potential. This implies that economic structure is both deter-
mined by and is a driver of growth; a common presumption is that industry is
the sector best able to promote long-term economic growth.
Structuralism: the theory
In a hugely influential article in 1950, Raul Prebisch divided the world into
‘core’countries producing industrial goods and ‘periphery’ countries produc-
ing agricultural goods. He stated that the shift from agriculture to industry is
desirable but may not even happen without some deliberate policy efforts by
176 Patterns and Determinants of Economic Growth