The service sector is often considered as tertiary, and sometimes even parasitic. 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 the economic activity of most ...
(Show more)The service sector is often considered as tertiary, and sometimes even parasitic. 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 the economic activity of most members of the society falls into the primary sector. As agricultural techniques improve, productivity rises and the size of the surplus grows. This enables the development of a manufacturing or ’secondary’ sector, producing both equipment and also consumer goods which satisfy some less basic needs over and above subsistence levels. As the wealth and productive potential of the society grows further, even more sophisticated needs are provided for by the service or tertiary sector. Along this line of reasoning the service sector is not so important in LDCs, since industrialisation has not taken place yet. This neglects, however, the fact that, in my opinion, the service sector plays a more important role in economic development. For example, without a well-functioning transport system, trade opportunities will be limited. And if trade opportunities are limited, this will discourage specialization and industrialization, which will hamper economic growth.
This paper will argue that a large service sector may be a necessary (but not sufficient) requirement for economic development. As in developing countries this sector is often smaller compared to developed countries, this may hinder their economic growth. The paper will especially focus on the service sector in Indonesia and will compare it with the service sector in more developed countries.
(Show less)