CONTRIBUTION OF SERVICES TO ECONOMIC GROWTH: KALDOR’S FIFTH LAW?

ABSTRACT

Purpose:

This study questions whether there is a Kaldor’s fifth law and tests whether the size of the intermediate services sector contributes to the growth of the industrial sector.

Originality/Value:

The laws proposed by Kaldor consider that the industrial sector contributes to economic growth and affirm that the growth of this sector depends on the existing demand for industrial products. If this new law is corroborated we have the initial evidences that the growth of the service sector contributes to the growth of the industry.

Design/methodological/approach:

The existence of this new law is tested through the estimation of panel VAR models for eight developed countries in the period 1980-2009.

Findings:

The growth of the service sector causes Granger to increase industrial productivity, industrial density and economic complexity. The causality test shows that there is a bidirectional causal relationship between the growth of the service sector and the industrial density and between the growth of the service sector and the Economic Complexity Index.

KEYWORDS
Kaldor; Services; Complexity; Economic Growth; Productivity