The two waves of service-sector growth

Although the positive association between the service sector share of output and per capita income is one of the best-known regularities in all of growth and development economics, there is less than complete agreement on the nature of that association. We identify two waves of service sector growth: a first wave in countries with relatively low levels of per capita GDP; and a second in countries with higher per capita incomes. The first wave is made up primarily of traditional services, the second of modern services. In addition, there is evidence of the second wave occurring at lower income levels after 1990, especially so in democracies, in countries that are open to trade, and in countries close to global financial centres. This points to both political and economic conditions that can help countries capitalize on the opportunities afforded by a globalized post-industrial economy. Copyright 2013 Oxford University Press 2011 All rights reserved, Oxford University Press.