Globalisation and Service Sector

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  • Topic: Economy, National accounts, Tertiary sector of the economy
  • Pages : 24 (6793 words )
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  • Published : July 10, 2012
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Globalisation and Service Sector

: Input-Output Analysis

Rita Bhowmik

Jadavpur University, Kolkata- 700032.
Email : rita_bhowmik2003@ yahoo.co.in

A B S R A C T

Globalization implies a comprehensive and self-evident process working towards establishing a worldwide aggregative whole of an economic structure into which all economies of the world must integrate today or tomorrow. This includes services which in most economies are the single largest contributor to economic growth and employment. It is widely recognized and deliberated upon that the global importance of service sector in terms of its share in Gross Output has been growing progressively in the economies of the world. The objective of this paper is to make an assessment of the global importance of the service sector which accounts the value added originating from service sector in total value added produced, needed directly and indirectly to produce gross output in the economy. For this purpose, an index of vertical integration has been constructed which provides a dimension-free measure of the multiplier of each industry on the value-added originating from the service sector to total value added. In this regard, the already well developed input-output technique has been used. The computations and results of the assessment of the global importance of service sector by input-output matrix method have been applied for India in 1993-94. Empirical part of this study shows that Other services, Trade, Chemicals, Construction, Minerals, Electricity, Rail Transport Services, played as a role of key sector in terms of importance of service sector as input for their production in the Indian economy. They provided strong stimulus to the economy by inducing greater value addition to service sector. In general, services industries appear to be the highly growth-inducing sector in so far as they help higher value addition to other industries in the economy.

Key words: Service Sector, value-added, Vertical Integration, Growth inducement

I: Introduction
1.1: Literature Review

Globalization implies a comprehensive and self-evident process working towards establishing a worldwide aggregative whole of an economic structure into which all economies of the world must integrate today or tomorrow. This includes services which in most economies are the single largest contributor to economic growth and employment (Hufbauer & Warren, 1999). Global importance of service sector in terms of their share in national Income/GDP has attracted the attention of the economists all over the world. Particularly in the last decade, inquires into this phenomenon have engaged the minds of the economists into possible reasons behind it. Theoretical explanations followed by empirical exercises have been made not only in the context of the developed countries but also in the context of the developing countries as well. Interests are not only restricted to the efforts for finding the reasons but also to sorting out of the implication of structural change in an open economy. To justify the growing importance of the tertiary sector in the recent period, the factors which have been highlighted, are the increasing role of the government in implementing the objectives of growth, employment generation and poverty amelioration, the historical role of the urban middle class in wholesale trade and distribution and the demonstration effect in developing countries creating demand patterns similar to those of developed countries (Panchmukhi, Numbia and Mehta, 1986). The increase in intermediate demand for services emphasises the role of increasing connections between manufacturing and services and transfers of service-type activities outside the firm (Fuchs, 1968 ; Kutcher & Personic, 1986 ; Tschetter, 1987; Barker, 1990). Moreover, income growth increases the market for services and expands the size of service sector, which benefits the industrial sector in two ways - first,...
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