Prospective Growth Impacts of Export Services

Abstract

Since the 1980s, sophisticated export services in India have outpaced manufacturing in driving rapid growth of the economy and labour productivity. Prior to this, India repressed its emerging comparative advantage in labour-intensive manufactures and agriculture, and created large regulatory rents to pursue a heavy industry big push during 1955–65. A growth collapse of the mid-1960s ushered in two decades of slow economic growth and rising surplus labour until expanding debt forced faster reform. The dynamism of Indian export services reflects light regulation and investment by nationals linked to ICT companies in Silicon Valley and Greater Boston. The Gulf states also generated insufficient employment, but through resource-based industrialization that traced a staple trap trajectory. Governments responded by overexpanding public sector employment, which proved unsustainable and triggered a protracted growth collapse. Gulf governments may need to run undervalued exchange rates if export services are to absorb nationals from the public sector into productive private sector employment.