Social and Behavioral Sciences Commons^™

Growing Like India. The Unequal Effects Of Service Lead Growth., Tianyu Fan, Michael Peters, Fabrizio Zilibotti

Discussion Papers

Structural transformation in most currently developing countries takes the form of a rapid rise in services but limited industrialization. In this paper, we propose a new methodology to structurally estimate productivity growth in service industries that circumvents the notorious difficulties in measuring quality improvements. In our theory, the expansion of the service sector is both a consequence—due to income effects—and a cause— due to productivity growth— of the development process. We estimate the model using Indian household data. We find that productivity growth in non-tradable consumer services such as retail, restaurants, or residential real estate, was an important driver of …