Developing countries should prioritize the service sectors

Source: The post Developing countries should prioritize the service sectors has been created, based on the article “Services offer a clear and speedy path to economic development” published in “Live mint” on 31st December 2024

UPSC Syllabus Topic: GS Paper3- Economy- growth and development

Context: The article argues that developing countries should focus more on services like finance, health, and tourism for growth, rather than relying solely on manufacturing. Services are growing faster, boosting productivity, foreign investment, and providing opportunities for women and skilled workers.

For detailed information on Services Sector in India read this article here

What is the Current Economic Situation for Developing Countries?

1. Developing countries have experienced a stagnant decade with no growth in per capita income since 2010.
2. Middle-income countries face the risk of aging before achieving substantial wealth.
3. High-income nations are grappling with the challenges of high debt levels and low productivity growth, which may lead to economic stagnation.
4. These economic conditions hinder international cooperation and progress, contrasting with the advancements seen after the fall of the Berlin Wall in 1989.
5. The overall economic landscape for developing countries is challenging, requiring strategic adjustments in policy and focus.

Why Should Developing Countries Shift Their Focus to Services?

Developing countries should shift their focus to services for several compelling reasons:

1. Economic Contribution: Services now constitute more than two-thirds of global GDP and half of global trade. This significant contribution underscores their potential to drive economic growth.
2. Productivity and Investment: In East Asia, services have led to increased labor productivity and foreign direct investment. For example, Vietnam’s labor productivity in services increased by 2.9% from 2008 to 2016 following WTO accession reforms.
3. Employment Opportunities: Services sectors employ nearly 50% of the workforce in East Asia, offering more opportunities for skilled workers and women. The proportion of women in the workforce is higher in services compared to manufacturing.
4. Digital Growth: The rapid adoption of digital technologies in services enhances efficiency and connectivity, contributing to economic dynamism and competitiveness.

What Should Policymakers Do?

Policymakers should support both services and manufacturing, maximizing the potential of the services sector to deliver growth and jobs. This dual focus can help countries transition from low- to middle- to high-income status more effectively.

Question for practice:

Discuss the reasons why developing countries should prioritize the development of service sectors over manufacturing to achieve economic growth and stability.