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 Globalization for the Good
 
Busting economic myths: service revolution in India
Mint, India Saturday, May 01, 2010


India and China have both been recognized for rapid economic growth. But India’s growth pattern is dramatically different. China has experienced a manufacturing-led growth, while India has side-stepped the manufacturing sector and made the big leap straight from agriculture into services. Their differences in growth patterns raise big questions in development economics, writes Ejaz Ghani in Mint.

The story of Hyderabad—the capital of Andhra Pradesh—is truly inspiring for latecomers to development. Within two decades, Andhra Pradesh has catapulted itself straight from a poor and largely agricultural economy into a major service centre.

...

India and China have both been recognized for rapid economic growth. But India’s growth pattern is dramatically different. China has experienced a manufacturing-led growth, while India has side-stepped the manufacturing sector and made the big leap straight from agriculture into services. Their differences in growth patterns raise big questions in development economics.

India’s growth pattern in the 21st century is remarkable because it contradicts a seemingly iron law of development that has held true for almost 200 years since the start of the Industrial Revolution. This law—which is now conventional wisdom—says that industrialization is the only route to rapid economic development for developing countries. It goes further to say that as a result of globalization, the pace of development can be explosive. But the potential for explosive growth is distinctive to manufacturing only. This is no longer the case. Countries with high growth in services also tend to have high overall economic growth; conversely, countries with high overall economic growth have high services growth.

...

India’s experience shows that growth has in fact been led by services, that labour productivity levels in services are above those in industry, and that productivity growth in service sectors in India matches labour productivity growth in manufacturing sectors in China.

...

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The services revolution could upset three long-held tenets of economic development. First, services have long been thought to be driven by domestic demand. They could not by themselves drive growth, but instead followed growth.

Second, services in developing countries were considered to have lower productivity and lower productivity growth than industry. As economies became more service-oriented, their growth would slow. For developing countries, this was thought to be inappropriate.

Third, services jobs in developing countries were thought of as menial, and for the most part poorly paid, especially for low-skilled workers. As such, service jobs could not be an effective pathway out of poverty.

...

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The core of the argument is that as the services produced and traded across the world expand with globalization, the possibilities for all countries to develop based on their comparative advantage expand. That comparative advantage can just as easily be in services as in manufacturing or indeed agriculture.

 

 

This article was published in the Mint on Saturday, May 01, 2010. Please read the original article here.
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Tags- Find more articles on - China | Hyderabad | India | industrial revolution | manufacturing | services

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