THE CONTEXT

In the lecture Simon Kuznets delivered in Stockholm when he received the Nobel Prize in Economic Sciences in 1971, he encouraged researchers not to concentrate only on industrial countries but to analyse less developed countries (LDCS) as well.

By now more than 35 years have passed and a growing number of researchers – some perhaps encouraged by Kuznets – have studied the less developed countries and constructed databases to meet the quantitative needs that Kuznets refers to. This has resulted in quite an impressive body of literature. However, there are still some important gaps to fill. One theme that has not yet received the attention it deserves is the role of the service sector in the economic development of LDCS. As economist Dorothy Riddle argues in her in-depth study on the service sector:

The reason for this is probably that the service sector is often considered to be subordinate. At the beginning of the process of economic development, agriculture is the most important sector. Initially, with low levels of productivity, there is little if any surplus above the subsistence requirements, so that economic activity of most members of society falls into the primary sector. As agricultural techniques improve, productivity rises and the size of the surplus grows, enabling the development of a manufacturing or secondary sector, which produces both equipment and consumer goods to satisfy some less basic needs over and above subsistence levels.