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Structural Change and Economic Development in India’s Service Sector: A State Level Study

In: Analytical Issues in Growth & Structural Change, Macroeconomy, Security, and Sustainability of India's Economic Development

Author

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  • Purba Roy Choudhury

    (The Bhawanipur Education Society College, Department of Economics)

Abstract

According to the conventional wisdom of development, there may be a positive association between the service sector share of GDP and per capita income. The paper explores the relationship between the service sector share of GDP and per capita income, proposing a quadratic and quartic model to understand how this relationship evolves over time. It finds evidence of two distinct waves of service sector growth. The first wave, beginning at relatively low income levels, shows an increase in the service sector share at a decelerating rate as income rises. The second wave, starting after 2001, demonstrates an upward shift in service sector growth, though the patterns vary across different specialized services. In the quadratic model, based on Chenery and Syrquin’s (1975) structural transformation theory, it is found that, except for community, social and personal services, the share of services is negatively related to per capita income but positively related to the square of per capita income. This suggests that, as an economy develops, structural changes occur, with the service sector growing as per capita income increases. Population size is positively related to the service share, but its squared term shows a negative relationship. These findings align with typical cross-country results, suggesting that the rise of services is a part of a standard development process. The quartic form analysis as envisaged by Eichengreen and Gupta (2013) further supports the existence of two waves of service sector growth. It shows that as economies grow, the service sector expands initially at a slower rate, then experiences an accelerated growth in the second wave after 2001. Specialized services like trade, transportation, financial services, and others show a quartic relationship with per capita income, indicating that the evolution of the service sector’s relative size is complex and varies across different types of services. In conclusion, the paper suggests that there are two waves of service sector growth, with different patterns emerging for various service sectors.

Suggested Citation

  • Purba Roy Choudhury, 2026. "Structural Change and Economic Development in India’s Service Sector: A State Level Study," India Studies in Business and Economics, in: Biswajit Chatterjee & Asim K. Karmakar (ed.), Analytical Issues in Growth & Structural Change, Macroeconomy, Security, and Sustainability of India's Economic Development, pages 45-64, Springer.
    • Handle: RePEc:spr:isbchp:978-981-95-5242-9_4
    DOI: 10.1007/978-981-95-5242-9_4
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    Keywords

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    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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