Developing the service sector as engine of growth for Asia: an overview

The maturing of the manufacturing sector in many Asian countries, combined with the relative backwardness of its service sector, has made service sector development a top priority for developing Asia. This paper surveys and analyses the current landscape of the region’s service sector so as to assess its potential to serve as an engine for inclusive economic growth.

The paper figures that services already account for a large share of the region’s output and employment. However, its productivity greatly lags that of the advanced economies, which implies ample room for further growth.

Conclusions are as follows:

• there is plenty of scope of further enhancement and development for Asia’s service sector
• Asia’s future growth will depend increasingly on raising productivity in the service sector
• one key challenge for all Asian countries is to improve the quality of service sector data

Recommendations include:

• creating more competitive services markets by removing a wide range of internal and external policy distortions is vital for improving service sector productivity
• internally, this include the strengthening of labour and capital markets, reform of tax regimes, and elimination of burdensome regulations
• externally, this involves reducing barriers to trade in services, which can promote efficiency and contribute directly to exports and growth
• equally important, complementary investments in physical infrastructure and human capital will also be necessary to achieve a strong service sector

The authors finally make a point that creating a more competitive environment for service industries must be the overall guiding principle for Asian policymakers.