The service sector in Asia: is it an engine of growth?

This study argues that the underdeveloped service sector in Asia has the potential to become a new engine of economic growth for developing Asia, though the region has traditionally relied on export-oriented manufacturing to power its growth.

The paper reveals that its analysis provides substantial cause for optimism about the role of the service sector as an engine of growth in Asia. In this sense, it highlights that:

• the analysis of 12 Asian economies indicates that the service sector already contributes substantially to the region’s growth
• furthermore, in the past, the service sector made the biggest contribution to national GDP growths comparing with other sectors
• a number of Asian countries have been able to achieve substantial labour productivity gains in the service sector
• in addition, the share of service sector output that is exported tends to rise over time in most Asian countries, and that is higher than developed countries

The authors conclude that services are set to play an even bigger role in the future, underlying particularly that the lower the per capita GDP, the greater the scope for labour productivity growth in the service sector.

However, the document stresses that a wide range of internal impediments—e.g., excessive regulation and state monopolies—and external impediments—e.g., barriers to services trade and FDI—shackle Asia’s service sector. The paper argues that removing those obstacles will unleash the full potential of Asia’s service sector to generate jobs and growth.