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The role of services in India's post-reform economic growth

Author

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  • Goldar, Bishwanath
  • Das, Pilu Chandra
  • Dutta, Samiran

Abstract

The services have been the driver of India's overall growth since the onset of economic reforms in the 1990s. The value-added share of services increased from 41 percent in 1990 to 53 percent in 2018. On average, the sector grew at 7.5 percent annually during 1993–2018, contributing to about half of the aggregate economic growth. Using the India KLEMS data, we examine the trends in total factor productivity (TFP) in individual industries within services and their contribution to aggregate TFP growth in the sector during 1993–2018. We find that transport and storage was the highest contributor among various market services industries followed by financial services, while public administration made a relatively high contribution to aggregate non-market services TFP growth. Moreover, we investigate the factors driving TFP growth in the services sector, particularly the role of manufacturing TFP – looking into spillover effect from manufacturing to market services and non-market services. Our results suggest that TFP growth in manufacturing had a significant positive impact on TFP growth in the services sector. Also, we find evidence of significant productivity spillover effect to India's services sector from other countries, particularly the developed countries.

Suggested Citation

  • Goldar, Bishwanath & Das, Pilu Chandra & Dutta, Samiran, 2024. "The role of services in India's post-reform economic growth," Structural Change and Economic Dynamics, Elsevier, vol. 68(C), pages 355-370.
    • Handle: RePEc:eee:streco:v:68:y:2024:i:c:p:355-370
    DOI: 10.1016/j.strueco.2023.10.016
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    More about this item

    Keywords

    India; Service sector; Total factor productivity; Domar aggregation; Determinants of productivity growth; ARDL model;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L8 - Industrial Organization - - Industry Studies: Services
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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