The Rise of the Service Economy

Buera, Francisco J.; Kaboski, Joseph P.

doi:10.1257/aer.102.6.2540

Cited by 381 publications

(161 citation statements)

References 43 publications

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“…By regressing standard deviations computed for the period 1961-2012 on services share in 1970 (and subsequent decades) the results are very similar to those reported in Tables 2 and 3. Several papers document the correlation of the share of services with per capita income, e.g., Echevarria (1997); Buera and Kaboski (2012); and Herrendorf, Rogerson, and Valentinyi (2013), among many others. Here I am interested in testing this relationship for the group of countries for which a statistically significant relationship between the services share and both growth and volatility has been found.…”

Section: Facts On Service Share Growth and Volatilitymentioning

confidence: 99%

Structural Change, Growth, and Volatility

Moro

2015

American Economic Journal: Macroeconomics

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I construct a two-sector general equilibrium model of structural change to study the impact of sectoral composition of gross domestic product (GDP) on cross-country differences in GDP growth and volatility. For an empirically relevant parametrization of sectoral production functions, an increase in the share of services in GDP reduces both aggregate total factor productivity (TFP) growth and volatility, thus reducing GDP growth and volatility. When the model is calibrated to the US manufacturing and service sector, the rise of the service sector occurring as income grows can account for a large fraction of the differences in per capita GDP growth and volatility between high-income economies and upper middle income economies. (JEL E23, E25, E32, L60, L80) T his article puts forth the idea that the composition of GDP represents an important channel in shaping both GDP growth and volatility. Cross-country evidence suggests that: (i) per capita GDP of high-income economies grows slower than that of middle income economies; (ii) high-income economies display lower per capita GDP volatility than middle income ones; and (iii) the share of services in GDP increases with income per capita. These facts together suggest that both the growth rate and the volatility of an economy might be related to its productive structure. To address this issue, I first report empirical evidence on the three observations above. Next, I present a two-sector general equilibrium model qualitatively consistent with such evidence. Finally, I use a calibrated version of the model to assess the importance of structural change between the broadly defined manufacturing and service sector for observed differences in per capita GDP growth and volatility between upper middle and high-income economies. Even in the most conservative

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Section: Facts On Service Share Growth and Volatilitymentioning

confidence: 99%

Structural Change, Growth, and Volatility

Moro

2015

American Economic Journal: Macroeconomics

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“…The latter also offers an extensive review of the empirical regularities on the changing patterns of sectoral shares in employment and in value‐added. Engel's Law plays the key role in most studies in this literature; see, for example, Kongsamut, Rebelo, and Xie () and Buera and Kaboski (), just to name a few. A relatively few studies, such as Baumol () and Ngai and Pissaridis (), focus on an exogenous difference in productivity growth rates across sectors as an alternative driver of structural change.…”

Section: Relations To the Existing Studiesmentioning

confidence: 99%

Engel's Law in the Global Economy: Demand‐Induced Patterns of Structural Change, Innovation, and Trade

Matsuyama¹

2019

ECTA

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Endogenous demand composition across sectors due to income elasticity differences, or Engel's Law for brevity, affects (i) sectoral compositions in employment and in value‐added, (ii) variations in innovation rates and in productivity change across sectors, (iii) intersectoral patterns of trade across countries, and (iv) product cycles from rich to poor countries. Using a two‐country model of directed technical change with a continuum of sectors under nonhomothetic preferences, which is rich enough to capture all these effects as well as their interactions, this paper offers a unifying perspective on how economic growth and globalization affect the patterns of structural change, innovation, and trade across countries and across sectors in the presence of Engel's Law. Among the main messages is that globalization amplifies, instead of reducing, the power of endogenous domestic demand composition differences as a driver of structural change.

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“…Rowthorn and Ramaswamy () used an international panel data set for 1963–1994 to argue that deindustrialization and the rise of services are due more to internal factors—faster productivity growth in manufacturing and rising incomes coupled with higher income elasticity of demand for services than for goods—than to external factors, such as import substitution from low‐wage manufacturing countries. Buera and Kaboski () explained the rise of services, particularly after 1980, as a result of rising productivity and the subsequent rise in the wage premium to skilled workers, raising the opportunity cost of household production, leading to increased demand for services which substitute for home production.…”

Section: Economic Recovery and The Rise Of The Service Sectormentioning

confidence: 99%

The Rise of Services, Deindustrialization, and the Length of Economic Recovery

Olney

Pacitti

2017

Economic Inquiry

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Economic recovery is longer in service‐providing economies than in goods‐producing economies. Services cannot be produced and inventoried ahead of demand; goods can. We are the first to document this macroeconomic repercussion of the sectoral shift away from the secondary sector toward the tertiary sector, that is, of deindustrialization and the rise of services. We distinguish between nontradable services and all other sectors, using U.S. state‐level employment data for post‐1960 recessions. Concerns over the endogeneity of services are addressed in two ways: by using 3‐year pre‐recession averages of sector shares, and separately by invoking instrumental variables. Our results are robust to alternative specifications. The increase in service production and deindustrialization in the United States over the last half‐century lengthens the trough‐to‐peak employment recovery from recessions by about 40%. (JEL E24, E32, L80, N12)

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The Rise of the Service Economy

Cited by 381 publications

References 43 publications

Structural Change, Growth, and Volatility

Structural Change, Growth, and Volatility

Engel's Law in the Global Economy: Demand‐Induced Patterns of Structural Change, Innovation, and Trade

The Rise of Services, Deindustrialization, and the Length of Economic Recovery

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