Structural Change in the 21st Century: The Role of the Modern Services Sector in the Economic Development Strategy

Abstract

ABSTRACT Traditional literature on Economic Growth highlights the role of the manufacturing sector in fostering economic growth. This sector, characterized by increasing returns, plays a fundamental role in both static and dynamic scale gains within the economy. Recently, an increasing number of studies have suggested that the increased share of the modern services sector also significantly contributes to innovation, productivity, and increased output. The aim of this paper is to reevaluate growth theories in light of the emerging prominence of the services sector and to outline key components of a research agenda that encompasses this sector as a crucial area of investigation. To substantiate this argument, we apply a GMM (Generalized Method of Moments) model to a dataset spanning from 1990 to 2018, encompassing fifty-one (51) countries, in order to evaluate the impact of modern services on manufacturing performance. An interaction variable is employed to test whether a symbiotic relationship between industry and services is the driving force behind economic growth. The results demonstrate the relevance of the services sector. Finally, we suggest possible research lines to be developed.