IDEAS home Printed from
   My bibliography  Save this article

The Determinants of Services Sector Growth: A Comparative Analysis of Selected Developed and Developing Economies


  • Muhammad Salam

    (School of Economics, Quaid-i-Azam University, Islamabad.)

  • Javed Iqbal

    (School of Economics, Quaid-i-Azam University, Islamabad.)

  • Anwar Hussain

    (Department of Environmental Economics, Pakistan Institute of Development Economics (PIDE), Islamabad.)

  • Hamid Iqbal

    (MPhil Scholar, School of Economics, Quaid-i- Azam University, Islamabad.)


This study empirically examines the possible factors that determine the services sector growth, both in selected developed and developing economies. For estimation purpose, the study employs the static as well as the dynamic panel data estimation technique with panel data over the period 1990-2014. The results suggest that GDP per capita, FDI net inflow, trade openness and innovations are the common factors that significantly affect the services sector growth both in developed and in developing economies. However, the productivity gap is the only factor that does not have any significant impact on services sector growth, both in developed and developing economies, which indicates that the Baumol's cost disease has been cured. Keywords: Services Sector Growth, Panel Data Analysis, Innovations

Suggested Citation

  • Muhammad Salam & Javed Iqbal & Anwar Hussain & Hamid Iqbal, 2018. "The Determinants of Services Sector Growth: A Comparative Analysis of Selected Developed and Developing Economies," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 57(1), pages 27-44.
  • Handle: RePEc:pid:journl:v:57:y:2018:i:1:p:27-44

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Koson Sapprasert, 2007. "The impact of ICT on the growth of the service industries," Working Papers on Innovation Studies 20070531, Centre for Technology, Innovation and Culture, University of Oslo, revised Apr 2010.
    2. Falvey, Rodney E & Gemmell, Norman, 1996. "Are Services Income-Elastic? Some New Evidence," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 42(3), pages 257-269, September.
    3. El Khoury, Antoine C. & Savvides, Andreas, 2006. "Openness in services trade and economic growth," Economics Letters, Elsevier, vol. 92(2), pages 277-283, August.
    4. Barry Eichengreen & Poonam Gupta, 2013. "The two waves of service-sector growth," Oxford Economic Papers, Oxford University Press, vol. 65(1), pages 96-123, January.
    5. Chitrakalpa SEN, 2011. "FDI in the Service Sector – Propagator of Growth for India?," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(6(559)), pages 141-156, June.
    6. Baumol, William J & Blackman, Sue Anne Batey & Wolff, Edward N, 1985. "Unbalanced Growth Revisited: Asymptotic Stagnancy and New Evidence," American Economic Review, American Economic Association, vol. 75(4), pages 806-817, September.
    7. Raja M. Mitra, 2011. "BPO Sector Growth and Inclusive Development in the Philippines," World Bank Publications - Reports 27398, The World Bank Group.
    8. Kuznets, Simon, 1973. "Modern Economic Growth: Findings and Reflections," American Economic Review, American Economic Association, vol. 63(3), pages 247-258, June.
    9. Estrada, Gemma & Acharya, Yubraj & Batten, Aaron & Brimble, Peter & Doung, Poullang & Gulamov, Mirzo Iskandar & Hossain, Mohammad Zahid & Mellor, Dominic & Park, Donghyun & Rahman, Shamsur, 2013. "The Service Sector in Lower-Income Asian Economies," ADB Economics Working Paper Series 347, Asian Development Bank.
    10. Yanrui Wu, 2007. "Service Sector Growth in China and India: A Comparison," Economics Discussion / Working Papers 07-04, The University of Western Australia, Department of Economics.
    11. Chakraborty, Chandana & Nunnenkamp, Peter, 2006. "Economic reforms, foreign direct investment and its economic effects in India," Kiel Working Papers 1272, Kiel Institute for the World Economy (IfW Kiel).
    12. Victor R. Fuchs, 1980. "Economic Growth and the Rise of Service Employment," NBER Working Papers 0486, National Bureau of Economic Research, Inc.
    13. Zvi Griliches, 1992. "Output Measurement in the Service Sectors," NBER Books, National Bureau of Economic Research, Inc, number gril92-1, March.
    14. T. S. Breusch & A. R. Pagan, 1980. "The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 239-253.
    15. Gabriele Tondl & Jorge A. Fornero, 2010. "Sectoral productivity and spillover effects of FDI in Latin America," FIW Working Paper series 053, FIW.
    16. Mr. Ramana Ramaswamy & Mr. Bob Rowthorn, 1993. "Centralized Bargaining, Efficiency Wages, and Flexibility," IMF Working Papers 1993/025, International Monetary Fund.
    17. Victor R. Fuchs, 1968. "The Service Economy," NBER Books, National Bureau of Economic Research, Inc, number fuch68-1, March.
    18. Ram C. Acharya, 2016. "ICT use and total factor productivity growth: intangible capital or productive externalities?," Oxford Economic Papers, Oxford University Press, vol. 68(1), pages 16-39.
    19. Metka Stare, "undated". "Services and innovation," SIMPATIC Working Papers 800, Bruegel.
    20. Schettkat, Ronald & Yocarini, Lara, 2003. "The Shift to Services: A Review of the Literature," IZA Discussion Papers 964, Institute of Labor Economics (IZA).
    21. Abdul Khaliq & Ilan Noy, 2007. "Foreign Direct Investment and Economic Growth: Empirical Evidence from Sectoral Data in Indonesia," Working Papers 200726, University of Hawaii at Manoa, Department of Economics.
    22. Barry P. Bosworth & Jack E. Triplett, 2003. "Productivity measurement issues in services industries: \\"Baumol's disease\\" has been cured," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 23-33.
    23. Gaurav Nayyar, 2009. "The Demand for Services in India. A Mirror Image of Engel's Law for Food?," Economics Series Working Papers 451, University of Oxford, Department of Economics.
    24. Somia Iram & Muhammad Nishat, 2009. "Sector Level Analysis of FDI-Growth Nexus: A Case Study of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 48(4), pages 875-882.
    25. Luísa Ferreira Lopes & Manuel Mira Godinho, 2005. "Services Innovation and Economic Performance An analysis at the firm level," DRUID Working Papers 05-08, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    26. Stephan Manning & J�rg Sydow & Arnold Windeler, 2012. "Securing Access to Lower-cost Talent Globally: The Dynamics of Active Embedding and Field Structuration," Regional Studies, Taylor & Francis Journals, vol. 46(9), pages 1201-1218, October.
    27. Sen, Chitrakalpa, 2011. "FDI in the Service Sector – Propagator of Growth for India?," MPRA Paper 30574, University Library of Munich, Germany.
    28. Alwyn Young, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 641-680.
    29. repec:bre:wpaper:800 is not listed on IDEAS
    30. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    31. M. Renuka & K. P. Kalirajan, 2002. "How IncomeElastic Is The Consumers Demand For Services In Singapore?," International Economic Journal, Taylor & Francis Journals, vol. 16(1), pages 95-104.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. D'Agostino, Antonello & Serafini, Roberta & Ward-Warmedinger, Melanie E., 2006. "Sectoral Explanations of Employment in Europe: The Role of Services," IZA Discussion Papers 2257, Institute of Labor Economics (IZA).
    2. Maroto-Sánchez, Andrés & Cuadrado-Roura, Juan R., 2009. "Is growth of services an obstacle to productivity growth? A comparative analysis," Structural Change and Economic Dynamics, Elsevier, vol. 20(4), pages 254-265, December.
    3. Tommaso Ciarli & Valentina Meliciani & Maria Savona, 2012. "Knowledge Dynamics, Structural Change And The Geography Of Business Services," Journal of Economic Surveys, Wiley Blackwell, vol. 26(3), pages 445-467, July.
    4. Ronald Schettkat, 2007. "The Astonishing Regularity Of Service Employment Expansion," Metroeconomica, Wiley Blackwell, vol. 58(3), pages 413-435, July.
    5. Sasaki, Hiroaki, 2007. "The rise of service employment and its impact on aggregate productivity growth," Structural Change and Economic Dynamics, Elsevier, vol. 18(4), pages 438-459, December.
    6. Fedderke, Johannes W., 2018. "Exploring unbalanced growth: Understanding the sectoral structure of the South African economy," Economic Modelling, Elsevier, vol. 72(C), pages 177-189.
    7. repec:dgr:rugggd:gd-115 is not listed on IDEAS
    8. Francisco J. Buera & Joseph P. Kaboski, 2012. "The Rise of the Service Economy," American Economic Review, American Economic Association, vol. 102(6), pages 2540-2569, October.
    9. Faïz Gallouj & Maria Savona, 2009. "Innovation in services: a review of the debate and a research agenda," Journal of Evolutionary Economics, Springer, vol. 19(2), pages 149-172, April.
    10. Uwitonze, Eric & Heshmati, Almas, 2016. "Service Sector Development and its Determinants in Rwanda," IZA Discussion Papers 10117, Institute of Labor Economics (IZA).
    11. Maria Savona & André Lorentz, 2005. "Demand and Technology Determinants of Structural Change and Tertiarisation: An Input-Output Structural Decomposition Analysis for four OECD Countries," LEM Papers Series 2005/25, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    12. Dale W. Jorgenson & Marcel P. Timmer, 2011. "Structural Change in Advanced Nations: A New Set of Stylised Facts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(1), pages 1-29, March.
    13. Matthias Figo & Peter Mayerhofer, 2015. "Strukturwandel und regionales Wachstum - wissensintensive Unternehmensdienste als Wachstumsmotor?," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 145, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    14. Ulrich Gunter & Egon Smeral, 2016. "The decline of tourism income elasticities in a global context," Tourism Economics, , vol. 22(3), pages 466-483, June.
    15. Datta, Madhusudan, 2019. "Manufacturing sector in the Indian economy: Output-value added symbiosis," Journal of Asian Economics, Elsevier, vol. 63(C), pages 75-87.
    16. Henze, Philipp, 2015. "Structural change and total factor productivity: Evidence from Germany," Economics Working Papers 2015-03, Christian-Albrechts-University of Kiel, Department of Economics.
    17. Nikolay Peykov, 2021. "Structural Changes of Household Expenditures in Bulgaria – Engel’s Law and Baumol’s “Cost Disease”," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 134-155.
    18. Peter Mayerhofer & Matthias Firgo, 2015. "Wissensintensive Unternehmensdienste, Wissens-Spillovers und regionales Wachstum. Teilprojekt 2: Strukturwandel und regionales Wachstum – Wissensintensive Unternehmensdienste als "Wachstumsmotor&," WIFO Studies, WIFO, number 58503, December.
    19. Esther Gordo & Javier Jareño & Alberto Urtasun, 2006. "Radiografía del sector servicios en España," Occasional Papers 0607, Banco de España.
    20. Rafael Camargo de Pauli & Luciano Nakabashi & Armando Vaz Sampaio, 2010. "Fatores de Oferta e Demanda na Qualificação dos Trabalhadores Brasileiros," Working Papers 0100, Universidade Federal do Paraná, Department of Economics.
    21. Fixler, Dennis J. & Siegel, Donald, 1999. "Outsourcing and productivity growth in services," Structural Change and Economic Dynamics, Elsevier, vol. 10(2), pages 177-194, June.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pid:journl:v:57:y:2018:i:1:p:27-44. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Khurram Iqbal (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.