Fabrizio Zilibotti from Yale University will present "Service-Led or Service-Biased Growth? Equilibrium Development Accounting Across Indian Districts." Authors: Tianyu Fan, Michael Peters, and Fabrizio Zilibotti
Abstract: In many developing countries, urbanization and structural change take the form of a declining agricultural sector and an increasing employment share of the service sector without a significant change in the size of the manufacturing sector. Is the growth of services an engine of growth or simply a consequence of the income effects stemming from productivity growth in the goods-producing sectors? In this paper we present a new methodology to estimate the productivity of the service sector exploiting the granularity of data on employment and expenditure shares. The structural estimation hinges on a spatial equilibrium model where the employment structure depends on the relative productivity of labor in different sector-regions and on the local demand. The key assumptions are nonhomothetic preferences (of the PIGL class) and the assumption that services, different from goods, must be provided locally in each market. We apply our methodology to the economic development of India between 1987 and 2011. Our (preliminary) results suggest that productivity growth in consumer and producer services were important drivers of structural transformation and of an increase in the living standards of the more urbanized areas. The model also allow us to assess the unequal effects of growth at different ladders of the income distribution.