Over at vox, Ejaz Ghani of the World Bank argues that services can play a more important role in development than is generally thought:
The story of Hyderabad – the capital of the Indian state of Andhra Pradesh – is truly inspiring for late-comers to development. Within two decades, Andhra Pradesh has catapulted itself straight from a poor and largely agricultural economy into a major service centre. Fuelled by a 45-fold increase in service exports between 1998 and 2008, the number of information technology companies in Hyderabad increased 8-fold, and employment increased 20-fold. Service-led growth has mushroomed in other parts of India too. India has acquired a global reputation for exporting modern services.
India and China have both been recognised for rapid economic growth. But India’s growth pattern is dramatically different. China has a global reputation for exporting manufactured goods. It has experienced a manufacturing-led growth. India has side-stepped the manufacturing sector, and made the big leap straight from agriculture into services. Their differences in growth patterns are striking. They raise big questions in development economics. Can developing countries jump straight from agriculture into services? Can services be as dynamic as manufacturing? Can late-comers to development take advantage of the globalisation of service? Can services be a driver of sustained growth, job creation, and poverty reduction?
...
... The old idea of services being non-transportable, non-tradable, and non-scalable no longer holds for a range of modern impersonal services. Developing countries can sustain service-led growth as there is a huge room for catch up and convergence.
...
India’s development experience offers hope to late-comers to development in Africa. The marginalisation of Africa during a period when China and other East Asian countries grew rapidly has led some to wonder if late-comers to development like Africa are doomed to failure. Many considered the “bottom billion” to be trapped in poverty (Collier 2007). The process of globalisation in the late 20th century led to a strong divergence of incomes between those who industrialised and broke into global markets and a bottom billion” of people in some 60 countries where incomes stagnated for twenty years. It seemed as if the bottom billion would have to wait their turn for development, until the giant industrialisers like China became rich and uncompetitive in labour-intensive manufacturing.
The promise of the service revolution is that countries do not need to wait to get started with rapid development. There is a new boat that development late-comers can take. The globalisation of service provides alternative opportunities for developing countries to find niches, beyond manufacturing, where they can specialise, scale up and achieve explosive growth, just like the industrialisers.
This all sounds right to me. Due to the vast improvements in technology and communications over the past two decades, there are many new opportunities for people in poor countries to offer services exports to those in rich countries. This is very good news, because even if the infant industry manufacturing model works, not everyone can take advantage of it at the same time. So, it's nice to have other options. It's a particularly good option for Africa, which has some logistical problems with shipping traditional manufactured goods.
