IFin Seminar, Fabrizio Zilibotti, Yale University - "Growing Like India: The Unequal Effects of Service-Led Growth"
Institute of Finance
Date: 04.05.2022 / 12:25 - 13:40
Seminar Title: "Growing Like India: The Unequal Effects of Service-Led Growth"
Fabrizio Zilibotti, Yale University
May 4, 2022
12:25 - 13:40
We study the welfare effects of productivity growth in the service sector in developing countries, emphasizing their variation across space and income distribution. To this aim, we construct a spatial equilibrium model in which agents have nonhomothetic preferences over final goods that differ in the intensity of the use of consumer services as production inputs. Over time, the expansion of employment in consumer services is both a consequence (income effects) and a cause (productivity growth) of the development process. We estimate the model using Indian household data from providing information on sectoral employment and consumption expenditure. We find that productivity growth in consumer services was an important driver of rising living standards between 1987 and 2011 accounting for one-third of aggregate welfare gains. However, these gains are heavily skewed toward high-income households living in cities because such individuals spend a large share of their budget on consumer service-intensive goods. Productivity growth in the service sector is also a powerful driver of the process of structural change that shifts employment out of agriculture and into the service sector with only limited industrialization.