attributes, at least in part, because they have a higher share of large firms. However, when repeating the exercise to classify industries as “low”, “medium”, or “high” based only on the sample of large firms, the data continue to be normally distributed, i.e., around 50 percent of all observations fall within 0.67 standard deviations above or below the mean (Tables 3, 4, 5, and 6). Therefore, industries are not closely clustered together in terms of the z-values such that it remains possible to establish two unique threshold points to divide industries into three categories. And the resulting categorization of industries across the attributes under consideration remains robust to this change.

# **4. Does the Growth of Services Depend on a Manufacturing Base?**

The analysis based on firm-level data from six developing countries in the previous subsection highlighted information technology and transportation and communications as two service subsectors that are characterized as “high” across a range of characteristics indicative of learningby-doing, international trade, and innovation. Further, wholesale and retail trade was classified as “medium” with respect to the same characteristics, while also not being skill and/or capitalintensive. That the services sector is increasingly characterized by productivity-enhancing characteristics notwithstanding, there is question of whether it can develop in the absence of a manufacturing base. This concern derives from the conventional pattern of structural change from agriculture to industry, and later from industry to services (Kuznets, 1971).

Unlike some service industries – such as health, education, tourism, and community services – that are largely stand-alone, transportation and communications, wholesale and retail trade, and professional, scientific, and technical services serve consumers directly but are also linked to manufacturing activity. To the extent that final demand contributes substantially to the growth of these services subsectors, opportunities can be created independent of a country’s manufacturing base. Such opportunities might be reinforced if intermediate demand for a given services subsector derives largely from sectors other than manufacturing, i.e. agriculture, utilities, construction and other services.

# <u>Methodology</u>

Growth in services value added is decomposed into changes attributable to intermediate and final demand. Final demand consists of consumption, investment, and net exports. The first part of intermediate demand refers to a given service subsector’s input into other sectors in the economy and enters as a positive contribution in the growth accounting exercise. It has 12 components: (1) the change in the input usage of services in agriculture; (2) the change in agriculture value added given the initial input usage of services in agriculture; (3) the product of these two changes; (4) the change in the input usage of services in manufacturing; (5) the change in manufacturing value added given the initial input usage of services in manufacturing; (6) the product of these two changes; (7) the change in the input usage of services in other industry (mining, construction, and utilities); (8) the change in other industry value added given the initial input usage of services in other industry; and (9) the product of these changes; (10) the change in the input usage of services in other services; (11) the change in other services value added given the initial input usage of services in other services; and (12) the product of these two changes. The second part of intermediate demand refers to input from other sectors into the given service subsector services 11