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The Service Sector Revolution in India: A Quantitative Analysis

Following the economic liberalization in India, the service sector has gained prominence in the economy as it accounts for the largest share of GDP and, also that the share of this sector in GDP has been growing very rapidly. Empirical data reveal two significant trends in the service sector following liberalization in 1991: growth in service sector productivity and growth in services' trade. The objective of this paper is to build a simple three sector quantitative model which can capture the increase in the share of service sector in GDP after liberalization. Within the context of the model, there are two exogenous changes that occur across the two steady states years, 1980 and 1999: growth in sectoral total factor productivity (TFP) and increase in the level of trade in industrial and service sectors. The results from a counterfactual experiment reveal that shutting down sectoral TFP affects the ability of the model to capture the data trends whereas the absence of sectoral trade negligibly affects the results. Hence I conclude that services' productivity growth versus the increase in services' trade can better explain the value added growth observed in the Indian service sector across the two steady states.
Publisher:
UNU-WIDER
Series:
WIDER Research Paper
Volume:
2008/72
Title:
The Service Sector Revolution in India: A Quantitative Analysis
Authors:
Rubina Verma
Publication date:
September 2008
ISSN Web:
1810-2611
ISBN 13 Web:
9789292301262
Copyright holder:
© UNU-WIDER
Copyright year:
2008
Keywords:
growth, trade, total factor productivity, services, India
JEL:
O14, O41, O53
Project:
Southern Engines of Global Growth
Sponsor:
The governments of Denmark (Royal Ministry of Foreign Affairs), Finland (Ministry for Foreign Affairs), Norway (Royal Ministry of Foreign Affairs), Sweden (Swedish International Development Cooperation Agency — Sida) and the United Kingdom (Department for International Development).
Format:
online
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