The Growth Potential of the Service Sector

Video | 21 May 2013

The service sector is becoming an increasingly important part of regional growth as countries move beyond the 'Factory Asia's economic model. A new ADB working paper looks at the potential the service sector holds to create jobs and drive growth and the kind of policies governments need to adopt to stimulate services.

Transcript

Title: The Growth Potential of the Service Sector

Description: The service sector is becoming an increasingly important part of regional growth as countries move beyond the 'Factory Asia's economic model. A new ADB working paper looks at the potential the service sector holds to create jobs and drive growth and the kind of policies governments need to adopt to stimulate services.

Gemma Estrada
Economics Officer
Economics and Research Department
Asian Development Bank

Q: Why is the services sector becoming a more important component of economic growth in developing Asia?
A: Services already account for a large share of Asia’s output, employment and growth. The sector is expected to play a bigger economic role in the coming years as Asian economies continue to undergo structural transformation. Within the region standardizing incomes and rapid urbanization are raising the demands for services. In addition given the external environment it is unlikely that demand for Asia’s manufacturing exports will recover strongly soon. And given that manufacturing exports will be a weaker source of growth than before, boosts in service sector growth can help offset the lost in growth momentum. And since, services tend to be labor intensive a robust growth from the sector is expected to create more jobs for Asia’s huge work force.

Q: What policy reforms are needed to make the services sector contribute more effectively to inclusive growth in low income Asian economies?
A: The policy reforms that low income Asian economies need in order to make their service sector contribute more to inclusive growth are broadly similar to what the region developing Asia needs as a whole. This include strengthening human capital through quality education, easing regulatory barriers to promote more competitive services markets, and raising investment in infrastructure. The need to undertake such reforms are even more urgent for low income economies given the severity of regulatory barriers and of gaps in human and physical capital.

Q: How can governments ensure balanced growth, wherein the emerging services and industry sector and industry support and reinforce each other?
A: A large part of the impediments to service sector development also impede the industry sector as well broader economic growth and development. Therefore pursuing policy reforms that eases impediments will help achieve balance growth in which the service and industry sector support and reinforce each other. There are a lot of synergies between the two sectors so this type of balance growth offers the most promising way for sustaining rapid growth in the future.