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Technology Shocks, the Service Sector and Economic Growth

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  • Mitra Thakur, Gogol

Abstract

Advances in ICTs as well as financial developments have greatly increased the scope for joint utilisation of various industrial goods and services. For example, consumption of many durable goods like telecommunication equipment (e.g. mobile sets), various electronic products, computer hardware and automobiles leads to joint purchases of services such as telecommunications, software services, insurance and other financial services. In this paper, we propose a specification for demand interlinkage between industry and the service sector, indicative of such developments, wherein final demand for service not only depends on industrial output but also on the relative price of service. This specification implies that a labour productivity increase in the service sector, say due to adoption of ICTs, can generate enough demand to increase both the growth rate in the economy and the relative size of the service sector if demand for service per unit industrial output is sufficiently elastic with respect to its relative price.

Suggested Citation

  • Mitra Thakur, Gogol, 2016. "Technology Shocks, the Service Sector and Economic Growth," MPRA Paper 73364, University Library of Munich, Germany, revised 27 Aug 2016.
  • Handle: RePEc:pra:mprapa:73364
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    File URL: https://mpra.ub.uni-muenchen.de/74004/1/MPRA_paper_74004.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Oulton, Nicholas, 2001. "Must the Growth Rate Decline? Baumol's Unbalanced Growth Revisited," Oxford Economic Papers, Oxford University Press, vol. 53(4), pages 605-627, October.
    3. Sasaki, Hiroaki, 2012. "Endogenous phase switch in Baumol's service paradox model," Structural Change and Economic Dynamics, Elsevier, vol. 23(1), pages 25-35.
    4. Pugno, Maurizio, 2006. "The service paradox and endogenous economic growth," Structural Change and Economic Dynamics, Elsevier, vol. 17(1), pages 99-115, January.
    5. Robert Rowthorn & Ramana Ramaswamy, 1999. "Growth, Trade, and Deindustrialization," IMF Staff Papers, Palgrave Macmillan, vol. 46(1), pages 1-2.
    6. 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.
    7. A. P. Thirlwall, 2002. "The Nature of Economic Growth," Books, Edward Elgar Publishing, number 2579.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Service sector; Information and Communication Technologies (ICTs); Demand-led growth; Two sector growth models;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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