Theory of Service Economy: A Review of the Literature

Abstract

The paper provided an overview of the recent theoretical and empirical research on service economy. We structured our review around questions likely to be of interest to scholars and policymakers. The paper started with a review of the literature on Baumol’s model that was one of the principle theories on service economy. It proceeded with a presentation of the determinants of the rising employment share in services relative to manufacturing industries. The paper then reviewed the theoretical literature on the agglomeration of service sectors. In this paper we focused on the link between deregulation of services and the performance of the manufacturing sector and economic growth. Our review identifies a number of important opportunities for future research on service economy.