Growing importance of services:

Structure of Production:

Chenery and  his  colleagues have analysed how  the structure of production changes as per  capita income rises (1975). They observed  that at the  initial stages  of  development  the share of manufactures  in GDP  rises. At a still  higher level of per  capita income the share of  services rises. Developed countries show this pattern.  The share of manufactures has decreased particularly rapidly  in  recent years, and  this has generated considerable controversy. Economists in  the developed  countries  have  analysed  this phenomenon, which they have called de-industrialisation. Some economists have charged that  increasing competition  from  producers  in  developing countries  has  resulted in the shrinking of the manufacturing  sector, particularly the labour intensive sectors, which have faced fierce competition, fostered in part by  the  reduction  in  tariffs  on  manufactures  in  previous Rounds  of multilateral trade negotiations  (MTNs). For instance, the average import duty levied by developed countries on manufactures was about 6% in the eighties, though  this masks  the fact that duties on goods imported from developing countries were much higher. Other economists have, however, argued that the shrinking of  employment in the manufacturing sector has been because of technological change, which has been  labour saving.  

However,  there  is  little dispute that technological change has changed  the nature of services. As Bhagwati  (1984) notes,  in earlier  times  a  musical performance was usually a non-tradeable  service, and only people from the area around where the performance was staged could attend it. Subsequently, when music could be captured on records and tapes, a musical performance became tradable through the medium of a good. Still later with the advent of radio and TV the service could be traded  without necessarily trading  the medium products such as radios and TVs. The service itself  had  become tradable and did  not have to be embodied in a good. Technical change has made many services tradable without these being embodied. Furthermore, as noted  earlier,  the service component  attached to  a good  that  is  sold  has increased to make the good more accessible and convenient to consumers. Services comprise 60%)  of world GDP and provide 50% of the employment. The share of services  hap been rising in the 90s in all regions of  the world.