IDEAS home Printed from https://ideas.repec.org/a/wly/emetrp/v91y2023i4p1457-1494.html
   My bibliography  Save this article

Growing Like India—the Unequal Effects of Service‐Led Growth

Author

Listed:
  • Tianyu Fan
  • Michael Peters
  • Fabrizio Zilibotti

Abstract

Structural transformation in most currently developing countries takes the form of a rapid rise in services but limited industrialization. In this paper, we propose a new methodology to structurally estimate productivity growth in service industries that circumvents the notorious difficulties in measuring quality improvements. In our theory, the expansion of the service sector is both a consequence—due to income effects—and a cause—due to productivity growth—of the development process. We estimate the model using Indian household data. We find that productivity growth in nontradable consumer services such as retail, restaurants, or residential real estate was an important driver of structural transformation and rising living standards between 1987 and 2011. However, the welfare gains were heavily skewed toward high‐income urban dwellers.

Suggested Citation

  • Tianyu Fan & Michael Peters & Fabrizio Zilibotti, 2023. "Growing Like India—the Unequal Effects of Service‐Led Growth," Econometrica, Econometric Society, vol. 91(4), pages 1457-1494, July.
    • Handle: RePEc:wly:emetrp:v:91:y:2023:i:4:p:1457-1494
    DOI: 10.3982/ECTA20964
    as

    Download full text from publisher

    File URL: https://doi.org/10.3982/ECTA20964
    Download Restriction: no
    File URL: https://libkey.io/10.3982/ECTA20964?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. David Atkin & Benjamin Faber & Marco Gonzalez-Navarro, 2018. "Retail Globalization and Household Welfare: Evidence from Mexico," Journal of Political Economy, University of Chicago Press, vol. 126(1), pages 1-73.
    2. S Madheswaran, 2016. "The Changing Rates of Return to Education in India: Evidence from NSS Data," Working Papers id:11324, eSocialSciences.
    3. Van Leemput, Eva, 2021. "A passage to India: Quantifying internal and external barriers to trade," Journal of International Economics, Elsevier, vol. 131(C).
    4. Margarida Duarte & Diego Restuccia, 2010. "The Role of the Structural Transformation in Aggregate Productivity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(1), pages 129-173.
    5. Klaus Desmet & Ejaz Ghani & Stephen O'Connell & Esteban Rossi-Hansberg, 2015. "The Spatial Development Of India," Journal of Regional Science, Wiley Blackwell, vol. 55(1), pages 10-30, January.
    6. Jedwab,Remi Camille & Ianchovichina,Elena & Haslop,Federico, 2022. "Consumption Cities versus Production Cities : New Considerations and Evidence," Policy Research Working Paper Series 10105, The World Bank.
    7. Treb Allen & Costas Arkolakis, 2014. "Trade and the Topography of the Spatial Economy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(3), pages 1085-1140.
    8. Fabian Eckert & Michael Peters, 2018. "Spatial Structural Change," 2018 Meeting Papers 98, Society for Economic Dynamics.
    9. Joel L. Horowitz, 2019. "Bootstrap Methods in Econometrics," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 193-224, August.
    10. Chang-Tai Hsieh & Esteban Rossi-Hansberg, 2023. "The Industrial Revolution in Services," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 1(1), pages 3-42.
    11. Muellbauer, John, 1976. "Community Preferences and the Representative Consumer," Econometrica, Econometric Society, vol. 44(5), pages 979-999, September.
    12. repec:oup:qjecon:v:129:y:2014:i:2:p:939-993. is not listed on IDEAS
    13. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 83-116.
    14. Rajeev Dehejia & Arvind Panagariya, 2016. "The Link between Manufacturing Growth and Accelerated Services Growth in India," Economic Development and Cultural Change, University of Chicago Press, vol. 64(2), pages 221-264.
    15. Rohit Lamba & Arvind Subramanian, 2020. "Dynamism with Incommensurate Development: The Distinctive Indian Model," Journal of Economic Perspectives, American Economic Association, vol. 34(1), pages 3-30, Winter.
    16. Gervais, Antoine & Jensen, J. Bradford, 2019. "The tradability of services: Geographic concentration and trade costs," Journal of International Economics, Elsevier, vol. 118(C), pages 331-350.
    17. Douglas Gollin & David Lagakos & Michael E. Waugh, 2014. "The Agricultural Productivity Gap," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(2), pages 939-993.
    18. Peter J. Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Takeda, Kohei, 2022. "The geography of structural transformation: effects on inequality and mobility," LSE Research Online Documents on Economics 118050, London School of Economics and Political Science, LSE Library.
    2. Pinelopi Koujianou Goldberg & Tristan Reed, 2023. "Reply to: Comments on “Presidential Address: Demand‐Side Constraints in Development. The Role of Market Size, Trade, and (In)Equality”," Econometrica, Econometric Society, vol. 91(6), pages 1963-1967, November.
    3. Huoqing Cao & Chaoran Chen & Xican Xi & Sharon Xuejing Zuo, 2024. "Family migration and structural transformation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 57(3), pages 753-776, August.
    4. Pinelopi Koujianou Goldberg & Tristan Reed, 2023. "Presidential Address: Demand‐Side Constraints in Development. The Role of Market Size, Trade, and (In)Equality," Econometrica, Econometric Society, vol. 91(6), pages 1915-1950, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mendez-Guerra, Carlos, 2014. "On the Development Gap between Latin America and East Asia: Welfare, Efficiency, and Misallocation," MPRA Paper 62588, University Library of Munich, Germany.
    2. Diego Restuccia, 2019. "Misallocation and aggregate productivity across time and space," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(1), pages 5-32, February.
    3. Fuchs-Schündeln, Nicola & Bick, Alexander & Lagakos, David, 2016. "How Do Average Hours Worked Vary with Development? Cross-Country Evidence and Implications," VfS Annual Conference 2016 (Augsburg): Demographic Change 145576, Verein für Socialpolitik / German Economic Association.
    4. Chen, Chaoran, 2020. "Technology adoption, capital deepening, and international productivity differences," Journal of Development Economics, Elsevier, vol. 143(C).
    5. Rodrigo Adão & Costas Arkolakis & Federico Esposito, 2019. "General Equilibrium Effects in Space: Theory and Measurement," NBER Working Papers 25544, National Bureau of Economic Research, Inc.
    6. Pena, Werner & Siegel, Christian, 2023. "Routine-biased technical change, structure of employment, and cross-country income differences," CEPR Discussion Papers 18366, C.E.P.R. Discussion Papers.
    7. Kjetil Storesletten & Bo Zhao & Fabrizio Zilibotti, 2019. "Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective," Cowles Foundation Discussion Papers 2191, Cowles Foundation for Research in Economics, Yale University.
    8. Stelios Michalopoulos & Elias Papaioannou, 2018. "Spatial Patterns of Development: A Meso Approach," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 383-410, August.
    9. Wenbiao Cai & Manish Pandey, 2015. "The Agricultural Productivity Gap In Europe," Economic Inquiry, Western Economic Association International, vol. 53(4), pages 1807-1817, October.
    10. Alexander Bick & Nicola Fuchs-Schündeln & David Lagakos, 2018. "How Do Hours Worked Vary with Income? Cross-Country Evidence and Implications," American Economic Review, American Economic Association, vol. 108(1), pages 170-199, January.
    11. Areendam Chanda & Bibhudutta Panda, 2012. "Unbalanced Productivity Growth in US States: Evidence from Factor Prices," Departmental Working Papers 2012-04, Department of Economics, Louisiana State University.
    12. Diego Restuccia, 2011. "Recent developments in economic growth," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 97(3Q), pages 329-357.
    13. Sposi, Michael, 2019. "Evolving comparative advantage, sectoral linkages, and structural change," Journal of Monetary Economics, Elsevier, vol. 103(C), pages 75-87.
    14. Bah, El-hadj M., 2007. "A Three-Sector Model of Structural Transformation and Economic Development," MPRA Paper 10654, University Library of Munich, Germany, revised 19 Sep 2008.
    15. D'Erasmo, Pablo N. & Moscoso Boedo, Hernan J., 2012. "Financial structure, informality and development," Journal of Monetary Economics, Elsevier, vol. 59(3), pages 286-302.
    16. Nicola Fuchs-Schuendeln & David Lagakos & Alexander Bick, 2015. "Measuring and Explaining International Differences in Hours Worked," 2015 Meeting Papers 592, Society for Economic Dynamics.
    17. Abdulla, Kanat, 2021. "Regional convergence and structural transformation in a resource-dependent country," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 548-557.
    18. repec:fip:fedreq:y:2011:i:3q:p:329-357:n:vol.97no.3 is not listed on IDEAS
    19. Avdiu,Besart & Bagavathinathan,Karan Singh & Chaurey,Ritam & Nayyar,Gaurav, 2022. "India's Services Sector Growth : The Impact of Services Trade on Non-tradable Services," Policy Research Working Paper Series 10094, The World Bank.
    20. A. Kerem Cosar & Latchezar Popov & Sophie Osotimehin, 2019. "Regional and Aggregate Implications of Transportation Costs and Tradability of Services," 2019 Meeting Papers 237, Society for Economic Dynamics.
    21. Daniel Gallardo‐Albarrán & Robert Inklaar, 2021. "The Role Of Capital And Productivity In Accounting For Income Differences Since 1913," Journal of Economic Surveys, Wiley Blackwell, vol. 35(3), pages 952-974, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:emetrp:v:91:y:2023:i:4:p:1457-1494. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/essssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.