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Structural Change: Do Services Substitute or Complete the Industry?

Year 2023, Volume: 16 Issue: 1, 29 - 46, 30.06.2023
https://doi.org/10.37093/ijsi.1280111

Abstract

This study analyzes the nature of the relationship between the services and the industry, i.e., substitution or complementarity, given the increasing share of services (tertiarization process) in the world economy. The economies in the world evolved towards a services-dominated structure over a half-century. This evolution resulted in a decreasing industry share despite continuously increased industrial production. We used a dataset covering the 1970-2018 period for 173 countries to investigate this question by employing the panel vector of auto-regression analysis (Panel VAR). We also approached the problem by estimating a dynamic panel data model by the two-step system GMM for robustness. The study also calculates the linkages between the industry and the services. The empirical results show that services do not substitute industry. There is a complementary role of the services for the industry, but the complementary role of the industry for services is ambiguous.

References

  • Abrigo, M. R. M., & Love, I. (2016). Estimation of panel vector autoregression in Stata. The Stata Journal, 16(3), 778–804. https://doi.org/10.1177/1536867X1601600314
  • Akarçay Gürbüz, A. (2011). Comparing trajectories of structural change. Cambridge Journal of Economics, 35(6), 1061–1085. https://doi.org/10.1093/cje/ber005
  • Amazon Alexa. (2020). Alexa Voice Service. Retrieved May 01, 2020, from https://developer.amazon.com/en-US/docs/alexa/alexa-voice-service/api-overview.html
  • Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment Equations. The Review of Economic Studies, 58(2), 277–297. https://doi.org/10.2307/2297968
  • Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51. https://doi.org/10.1016/0304-4076(94)01642-D
  • Attali, J. (1981). Les Trois Mondes [The three worlds]. Fayard.
  • Bacon, R. W., & Eltis, W. (1976). Britain’s economic problem: Too few producers. MacMillan.
  • Baldwin, R. (2019). The globotics upheaval: Globalization, robotics, and the future of work. Oxford University Press.
  • Baldwin, R., & Forslid, R. (2020, February). Globotics and development: When manufacturing is jobless and services are tradable (NBER Working Paper No. 26731). National Bureau of Economic Research. https://www.nber.org/system/files/working_papers/w26731/w26731.pdf
  • Ballesta, J. A. C., Melikhova, Y., & Peinado, M. H. (2012). Services in the EU productive systems: A comparative study of the new and old member states. Inzinerine Ekonomika–Engineering Economics, 23(3), 223–232. https://doi.org/10.5755/j01.ee.23.3.1931
  • Bell, D. (1973). The coming of post-industrial society: A venture in social forecasting. Basic Books.
  • Bell, D. (1976). The cultural contradictions of capitalism. Basic Books Inc.
  • Berry, B. J. L. (1997). Reversal of a relationship: A note on the tertiary sector. Urban Geography, 18(5), 460–467. https://doi.org/10.2747/0272-3638.18.5.460
  • Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/10.1016/S0304-4076(98)00009-8
  • Caves, R. E., Wriston, W. B., & Schlesinger, J. R. (1980). The structure of industry. In M. Feldstein (Ed.), The American Economy in Transition (pp. 501–562). University of Chicago Press.
  • Chenery, H. (1979). Structural change and development policy. Oxford University Press, for the World Bank.
  • Chudik, A., & Pesaran, M. H. (2015). Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors. Journal of Econometrics, 188(2), 393–420. https://doi.org/10.1016/j.jeconom.2015.03.007
  • Clark, C. (1940). The conditions of economic progress. Macmillan.
  • Cohen, S. S., & Zysman, J. (1987). Manufacturing matters: The myth of the post-industrial economy. Council on Foreign Relations Book Series. Basic Books.
  • Condon, S. (2016, June 28). What new technologies will improve customer service? ZDNET. Retrieved May 01, 2020, from https://www.zdnet.com/article/what-new-technologies-will-improve-customer-service
  • Dasgupta, S., & Singh, A. (2007). Manufacturing, services and premature deindustrialization in developing countries: A Kaldorian Analysis. In G. Mavrotas & A. Shorrocks (Eds.), Advancing Development: Core Themes in Global Economics (pp. 435–454). Palgrave Macmillan UK. https://doi.org/10.1057/9780230801462_23
  • Desmarchelier, B., & Gallouj, F. (2013). Endogenous growth and environmental policy: Are the processes of growth and tertiarization in developed economies reversible? Journal Evolutionary Economics, 23(4), 831–860. https://shs.hal.science/halshs-01133852
  • Eberhardt, M., & Presbitero, A. F. (2015). Public debt and growth: Heterogeneity and non-linearity. Journal of International Economics, 97(1), 45–58. https://doi.org/10.1016/j.jinteco.2015.04.005
  • Engel, E. (1857). Die produktions-und konsumptionsverhältnisse des königreichs sachsen [The conditions of production and consumption in the Kingdom of Saxony]. Zeitschrift des Statistischen Bureaus des Königlich Sächsischen Ministerium des Inneren 8–9.
  • Fisher, A. G. B. (1935). The clash of progress and security. Augustus M. Kelley.
  • Fourastié, J. (1949). Le grand espoir du xxe siècle: Progrès technique, progrès economique, progrès social [The great hope of the 20th century: Technical progress, economic progress, social progress]. Réed 1989 Collection Tel Gallimard. Presses Universitaires de France,
  • Fuchs, V. R. (1968). The service economy. National Bureau of Economic Research, Columbia University Press.
  • Genaro, D. & Melchor, E. (2009). The impact of the tertiarization process in Spanish economic growth from a regional perspective. The Service Industries Journal, 30(3), 359–374. https://doi.org/10.1080/02642060802236129
  • Gengenbach, C., Urbain, J. P., & Westerlund, J. (2016). Error correction testing in panels with common stochastic trends. Journal of Applied Econometrics, 31(6), 982–1004. https://doi.org/10.1002/jae.2475
  • Gershuny, J. (1978). After industrial society? The emerging self-service economy. MacMillan.
  • Gershuny, J., & Miles, I. (1983). The new service economy: The transformation of employment in industrial societies. Frances Pinter.
  • Holtz-Eakin, D., Newey, W., & Rosen, H. S. (1988). Estimating vector autoregressions with panel data. Econometrica, 56(6), 1371–1395. https://doi.org/10.2307/1913103
  • Kaldor, N. (1966). Causes of the slow rate of economic growth of the United Kingdom: An inaugural lecture. Cambridge University Press.
  • Kuznets, S. (1957). Quantitative aspects of the economic growth of nations: II. Industrial distribution of national product and labor force. Economic Development and Cultural Change, 5(4), 1–111.
  • Kuznets, S. (1966). Modern economic growth, rate, structure, and spread. New Haven, Yale University Press.
  • Lin, J. Y., & Wang, Y. (2020). Structural change, industrial upgrading, and middle-income trap. Journal of Industry, Competition, and Trade, 20, 359–394. https://doi.org/10.1007/s10842-019-00330-3
  • Lipietz, A. (1980). Le Tertiaire, arborescence de l’accumulation capitaliste [The tertiary, tree structure of capitalist accumulation]. Crit Écon Polit, 12, 37–69.
  • Miller R. E., & Blair, P. D. (2009). Input-output analysis: foundations and extensions (2nd ed.). Cambridge University Press. Persyn, D., & Westerlund, J. (2008). Error-correction–based cointegration Tests for panel data. The Stata Journal, 8(2), 232–241. https://doi.org/10.1177/1536867X0800800205
  • Pesaran, M. H. (2004, August). General diagnostic tests for cross section dependence in panels (IZA Discussion Paper, No. 1240). Institute for the Study of Labor. https://docs.iza.org/dp1240.pdf
  • Petty, W. (1899). Political arithmetic. In C. H. Hull (Ed.), The Economic Writings of Sir William Petty. Cambridge University Press. (Original work published 1690)
  • Pinto, A. (1984). Metropolization and tertiarization: Structural distortions in Latin American development. United Nations CEPAL Review, (24), 17–38.
  • Rodrik, D. (2016). Premature deindustrialization. Journal of Economic Growth, 21(1), 1–33. https://doi.org/10.1007/s10887-015-9122-3
  • Roodman, D. (2009). How to do Xtabond2: An Introduction to difference and system GMM in Stata. The Stata Journal, 9(1), 86–136. https://doi.org/10.1177/1536867X0900900106
  • Rowthorn, R., & Wells, J. (1987). De-Industrialization and foreign trade. Cambridge University Press.
  • Timmer, M. P., Dietzenbacher, E., Los, B., Stehrer, R., & de Vries, G. J. (2015). An illustrated user guide to the world input–output database: The case of global automotive production. Review of International Economics, 23(3), 575–605. https://doi.org/10.1111/roie.12178
  • UNCTAD. (2021). Handbook of Statistics. UNCTADstat. Retrieved January 05, 2021, from http://unctadstat.unctad.org/EN/Index.html
  • Vogt, K. C. (2016). The post-industrial society: From utopia to ideology. Work, Employment and Society, 30(2), 366–376. https://doi.org/10.1177/0950017015577911
  • Westerlund, J. (2007). Testing for error correction in panel data. Oxford Bulletin of Economics and Statistics, 69(6), 709–748. https://doi.org/10.1111/j.1468-0084.2007.00477.x
Year 2023, Volume: 16 Issue: 1, 29 - 46, 30.06.2023
https://doi.org/10.37093/ijsi.1280111

Abstract

References

  • Abrigo, M. R. M., & Love, I. (2016). Estimation of panel vector autoregression in Stata. The Stata Journal, 16(3), 778–804. https://doi.org/10.1177/1536867X1601600314
  • Akarçay Gürbüz, A. (2011). Comparing trajectories of structural change. Cambridge Journal of Economics, 35(6), 1061–1085. https://doi.org/10.1093/cje/ber005
  • Amazon Alexa. (2020). Alexa Voice Service. Retrieved May 01, 2020, from https://developer.amazon.com/en-US/docs/alexa/alexa-voice-service/api-overview.html
  • Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment Equations. The Review of Economic Studies, 58(2), 277–297. https://doi.org/10.2307/2297968
  • Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51. https://doi.org/10.1016/0304-4076(94)01642-D
  • Attali, J. (1981). Les Trois Mondes [The three worlds]. Fayard.
  • Bacon, R. W., & Eltis, W. (1976). Britain’s economic problem: Too few producers. MacMillan.
  • Baldwin, R. (2019). The globotics upheaval: Globalization, robotics, and the future of work. Oxford University Press.
  • Baldwin, R., & Forslid, R. (2020, February). Globotics and development: When manufacturing is jobless and services are tradable (NBER Working Paper No. 26731). National Bureau of Economic Research. https://www.nber.org/system/files/working_papers/w26731/w26731.pdf
  • Ballesta, J. A. C., Melikhova, Y., & Peinado, M. H. (2012). Services in the EU productive systems: A comparative study of the new and old member states. Inzinerine Ekonomika–Engineering Economics, 23(3), 223–232. https://doi.org/10.5755/j01.ee.23.3.1931
  • Bell, D. (1973). The coming of post-industrial society: A venture in social forecasting. Basic Books.
  • Bell, D. (1976). The cultural contradictions of capitalism. Basic Books Inc.
  • Berry, B. J. L. (1997). Reversal of a relationship: A note on the tertiary sector. Urban Geography, 18(5), 460–467. https://doi.org/10.2747/0272-3638.18.5.460
  • Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/10.1016/S0304-4076(98)00009-8
  • Caves, R. E., Wriston, W. B., & Schlesinger, J. R. (1980). The structure of industry. In M. Feldstein (Ed.), The American Economy in Transition (pp. 501–562). University of Chicago Press.
  • Chenery, H. (1979). Structural change and development policy. Oxford University Press, for the World Bank.
  • Chudik, A., & Pesaran, M. H. (2015). Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors. Journal of Econometrics, 188(2), 393–420. https://doi.org/10.1016/j.jeconom.2015.03.007
  • Clark, C. (1940). The conditions of economic progress. Macmillan.
  • Cohen, S. S., & Zysman, J. (1987). Manufacturing matters: The myth of the post-industrial economy. Council on Foreign Relations Book Series. Basic Books.
  • Condon, S. (2016, June 28). What new technologies will improve customer service? ZDNET. Retrieved May 01, 2020, from https://www.zdnet.com/article/what-new-technologies-will-improve-customer-service
  • Dasgupta, S., & Singh, A. (2007). Manufacturing, services and premature deindustrialization in developing countries: A Kaldorian Analysis. In G. Mavrotas & A. Shorrocks (Eds.), Advancing Development: Core Themes in Global Economics (pp. 435–454). Palgrave Macmillan UK. https://doi.org/10.1057/9780230801462_23
  • Desmarchelier, B., & Gallouj, F. (2013). Endogenous growth and environmental policy: Are the processes of growth and tertiarization in developed economies reversible? Journal Evolutionary Economics, 23(4), 831–860. https://shs.hal.science/halshs-01133852
  • Eberhardt, M., & Presbitero, A. F. (2015). Public debt and growth: Heterogeneity and non-linearity. Journal of International Economics, 97(1), 45–58. https://doi.org/10.1016/j.jinteco.2015.04.005
  • Engel, E. (1857). Die produktions-und konsumptionsverhältnisse des königreichs sachsen [The conditions of production and consumption in the Kingdom of Saxony]. Zeitschrift des Statistischen Bureaus des Königlich Sächsischen Ministerium des Inneren 8–9.
  • Fisher, A. G. B. (1935). The clash of progress and security. Augustus M. Kelley.
  • Fourastié, J. (1949). Le grand espoir du xxe siècle: Progrès technique, progrès economique, progrès social [The great hope of the 20th century: Technical progress, economic progress, social progress]. Réed 1989 Collection Tel Gallimard. Presses Universitaires de France,
  • Fuchs, V. R. (1968). The service economy. National Bureau of Economic Research, Columbia University Press.
  • Genaro, D. & Melchor, E. (2009). The impact of the tertiarization process in Spanish economic growth from a regional perspective. The Service Industries Journal, 30(3), 359–374. https://doi.org/10.1080/02642060802236129
  • Gengenbach, C., Urbain, J. P., & Westerlund, J. (2016). Error correction testing in panels with common stochastic trends. Journal of Applied Econometrics, 31(6), 982–1004. https://doi.org/10.1002/jae.2475
  • Gershuny, J. (1978). After industrial society? The emerging self-service economy. MacMillan.
  • Gershuny, J., & Miles, I. (1983). The new service economy: The transformation of employment in industrial societies. Frances Pinter.
  • Holtz-Eakin, D., Newey, W., & Rosen, H. S. (1988). Estimating vector autoregressions with panel data. Econometrica, 56(6), 1371–1395. https://doi.org/10.2307/1913103
  • Kaldor, N. (1966). Causes of the slow rate of economic growth of the United Kingdom: An inaugural lecture. Cambridge University Press.
  • Kuznets, S. (1957). Quantitative aspects of the economic growth of nations: II. Industrial distribution of national product and labor force. Economic Development and Cultural Change, 5(4), 1–111.
  • Kuznets, S. (1966). Modern economic growth, rate, structure, and spread. New Haven, Yale University Press.
  • Lin, J. Y., & Wang, Y. (2020). Structural change, industrial upgrading, and middle-income trap. Journal of Industry, Competition, and Trade, 20, 359–394. https://doi.org/10.1007/s10842-019-00330-3
  • Lipietz, A. (1980). Le Tertiaire, arborescence de l’accumulation capitaliste [The tertiary, tree structure of capitalist accumulation]. Crit Écon Polit, 12, 37–69.
  • Miller R. E., & Blair, P. D. (2009). Input-output analysis: foundations and extensions (2nd ed.). Cambridge University Press. Persyn, D., & Westerlund, J. (2008). Error-correction–based cointegration Tests for panel data. The Stata Journal, 8(2), 232–241. https://doi.org/10.1177/1536867X0800800205
  • Pesaran, M. H. (2004, August). General diagnostic tests for cross section dependence in panels (IZA Discussion Paper, No. 1240). Institute for the Study of Labor. https://docs.iza.org/dp1240.pdf
  • Petty, W. (1899). Political arithmetic. In C. H. Hull (Ed.), The Economic Writings of Sir William Petty. Cambridge University Press. (Original work published 1690)
  • Pinto, A. (1984). Metropolization and tertiarization: Structural distortions in Latin American development. United Nations CEPAL Review, (24), 17–38.
  • Rodrik, D. (2016). Premature deindustrialization. Journal of Economic Growth, 21(1), 1–33. https://doi.org/10.1007/s10887-015-9122-3
  • Roodman, D. (2009). How to do Xtabond2: An Introduction to difference and system GMM in Stata. The Stata Journal, 9(1), 86–136. https://doi.org/10.1177/1536867X0900900106
  • Rowthorn, R., & Wells, J. (1987). De-Industrialization and foreign trade. Cambridge University Press.
  • Timmer, M. P., Dietzenbacher, E., Los, B., Stehrer, R., & de Vries, G. J. (2015). An illustrated user guide to the world input–output database: The case of global automotive production. Review of International Economics, 23(3), 575–605. https://doi.org/10.1111/roie.12178
  • UNCTAD. (2021). Handbook of Statistics. UNCTADstat. Retrieved January 05, 2021, from http://unctadstat.unctad.org/EN/Index.html
  • Vogt, K. C. (2016). The post-industrial society: From utopia to ideology. Work, Employment and Society, 30(2), 366–376. https://doi.org/10.1177/0950017015577911
  • Westerlund, J. (2007). Testing for error correction in panel data. Oxford Bulletin of Economics and Statistics, 69(6), 709–748. https://doi.org/10.1111/j.1468-0084.2007.00477.x
There are 48 citations in total.

Details

Primary Language English
Subjects Panel Data Analysis, Growth, Development Economics - Macro
Journal Section Articles
Authors

Ümit Gaberli 0000-0003-0097-174X

Publication Date June 30, 2023
Submission Date April 10, 2023
Published in Issue Year 2023 Volume: 16 Issue: 1

Cite

APA Gaberli, Ü. (2023). Structural Change: Do Services Substitute or Complete the Industry?. International Journal of Social Inquiry, 16(1), 29-46. https://doi.org/10.37093/ijsi.1280111

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