Inside the black box of services: evidence from India

In general, economists have treated the services sector as a black box. India, where the sector now dominates economic activity, is no exception. The object of this paper is to develop a taxonomy of the services sector with reference to different economic characteristics. Analysing data from India, we find that it is a set of highly heterogeneous economic activities with respect to productivity-enhancing technology characteristics, barriers to entry for employment, factor use, linkages with other sectors and tradability in international markets. This is indicative of subsector-specific implications for economic growth, balance of payments, employment, the sustainability of services-led growth, poverty, inequality and the different explanations for the growing share of the services sector in total output. Importantly, these implications, which lend perspective to the findings of a growing literature on the subject, provide a stepping stone for advancing significant research questions, both in the context of India and elsewhere. Copyright , Oxford University Press.