Services-Led Growth: Better Prospects after the Pandemic ?

The service sector accounted for two-thirds of economic growth in emerging market anddeveloping economies over the past three decades. It consists of a wide range of activities, ranging fromhigh-skilled offshorable services, such as information andcommunications technology (ICT) and professional services, to low-skilled “contact” services, such as retail andhospitality. The pandemic disrupted many low-skilled contact services that typically require face-to-face interactionsbetween providers and consumers. High-skilled offshorable services were the least affected owing to the use of digitaltechnology that enabled remote delivery. Increased digitalization has improved prospects for scale economiesand innovation in the service sector that were previously constrained by the need for physical proximity and the lackof opportunities to augment labor with capital. Policies to support the diffusion of digital technologies couldtherefore further raise the growth potential of the service sector. Policies to improve market access for, and skillsin, ICT and professional services could ease important constraints on growth opportunities in these high-skilledoffshorable services that have best withstood the pandemic. The same holds true for policies, including regulatoryreforms, that promote investment in low-skilled contact services, such as transportation, which have importantlinkages with the wider economy.