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Structural transformation in India: The Role of the Service Sector

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  • Rafael Serrano-Quintero

    (Universitat de Barcelona, BEAT and CREB)

Abstract

Contrary to the experience of industrialized countries, productivity growth of Indian services has been consistently faster than manufacturing. In this paper, I document that (i) the fastest growing industries in services grow faster than in manufacturing; (ii) faster productivity growth in services than in manufacturing is not because of sluggish manufacturing productivity; (iii) the supply of skilled workers in India is skewed towards tertiary education and (iv) the service sector is the most skill intensive; (v) returns to schooling are larger for the high-productivity services. To quantify and rationalize these facts, I construct a multi-sector model of estructural change with high and low-skilled workers. The calibrated model suggests that the large supply of high-skill workers combined with higher skill intensity in the service sector seem to be behind the services take-off. The data imply that service sub-sectors are gross substitutes while manufacturing sub-sectors are gross complements. This will accelerate productivity growth in services and decelerate productivity growth in manufacturing.

Suggested Citation

  • Rafael Serrano-Quintero, 2023. "Structural transformation in India: The Role of the Service Sector," UB School of Economics Working Papers 2023/451, University of Barcelona School of Economics.
    • Handle: RePEc:ewp:wpaper:451web
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    File URL: http://hdl.handle.net/2445/202190
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    References listed on IDEAS

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    More about this item

    Keywords

    Structural transformation; Productivity; Human Capital; India.;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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