Manufacturing vs. Services and the Role of Information Technology

Manufacturing vs. Services and the Role of Information Technology

Arnab Adhikari (Indian Institute of Management Ranchi, India) and Shromona Ganguly (Indian Institute of Management Calcutta, India & Reserve Bank of India, India)
Copyright: © 2018 |Pages: 14
DOI: 10.4018/978-1-5225-2255-3.ch629


The role of information technology is often debated in the context of economic development of the developing countries. In order to understand the role technology plays in the structural change of the economy, the chapter analyses the case of India, which, according to many researchers has experienced an “idiosyncratic” pattern of structural changes since its independence compared to many countries. This is evident from the fact that growth of Indian economy has been driven by the services sector rather than manufacturing which prompted many researches to conclude that India has leapfrogged the phase of industrialization. This chapter examines the impact of services-led growth and the role of Information Technology in India through a comparative analysis of manufacturing versus services in export performance and employment scenario. The study concludes that the India needs a more broad based policy of technology adoption, not only to sustain its services led growth but also to boost its manufacturing sector as well as make the economic development more inclusive.
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In this section, first, we present a summarized description of existing scholarly works on structural changes of the economy. The second half of this section traces out the role of technology in the context of structural transformation.

Key Terms in this Chapter

De-Industrialization: The term is used to describe declining industrial profit and labour displacement due to increased innovation and use of technology in industry.

Services: The tertiary sector of the economy (also known as the service sector or the service industry) is one of the three economic sectors, the others being the secondary sector (approximately the same as manufacturing) and the primary sector (agriculture, fishing, and extraction such as mining). It mainly comprises of the “intangible goods” like tourism, healthcare, hospital and other public services.

Revealed Comparative Advantage Index: It is based on the notion of comparative advantage pioneered by Ricardo in the theory of international trade. The index is calculated as: RCA = (E ij / E it ) / (E nj / E nt ) where: E: Exports, I: Country index N: Set of countries J: Commodity index t:Set of commodities.

Splintering Effect: Splintering occurs when a part of the activities in manufacturing sector is outsourced to the services sector. For example, painting a car is often outsourced from the automobile industry to a services firm. This is also known as “fragmentation” of activities in the economy.

Verdoorn’s Law: Named After Petrus Johannes Verdoorn (1949) , the law states that in the long run productivity generally grows proportionally to the square root of output. As a result, in the presence of increasing returns, faster growth in output results in faster growth in productivity.

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