The role of services in driving long-term economic development is gaining renewed attention as automation, robotics, and global competition make large-scale manufacturing-led industrialization more difficult for many developing economies. The discussion is shifting from whether services can replace manufacturing to which types of services can support sustained growth and productivity gains.
Traditionally, manufacturing was viewed as the primary engine of development, providing large-scale employment, boosting productivity, and integrating economies into global value chains. However, structural changes in global production have reduced access to this “industrialization pathway” for many countries, leading policymakers to reassess alternative growth models.
A growing body of analysis suggests that not all services have the same economic impact. Expanding local services such as retail, hospitality, and informal activities can generate employment, but typically offers limited productivity growth or integration into global markets.
In contrast, knowledge-intensive and globally connected services — including information and communications technology (ICT), software development, logistics, and professional services — are increasingly seen as having the potential to replicate some of the transformative effects once associated with manufacturing. These sectors tend to be tradable, export-oriented, and more closely linked to global value chains.
However, these knowledge-based services often employ relatively small portions of the workforce, creating a structural challenge for developing economies that must balance job creation with productivity growth.
Examples from different countries illustrate the varying outcomes of service-led development strategies. Economies such as Ireland, Singapore, and Estonia have developed strong knowledge-service sectors that support income convergence with advanced economies. India has also built a significant global software and ICT services industry, though translating sectoral success into broad-based productivity gains remains a continuing challenge.
Data from several developing economies shows that while services often account for more than half of GDP, knowledge-intensive services remain relatively small. In countries such as Egypt, they represent about 6% of GDP, while in Morocco and Tunisia they account for under 10%, compared with higher shares in advanced European economies.
Country-specific experiences highlight different development patterns. Morocco has developed globally connected logistics and technology-related services, supported by infrastructure such as the Tanger Med Port, though these sectors remain limited in scale relative to the overall economy. Egypt shows strong integration into global trade flows, partly through the Suez Canal, but faces challenges in expanding knowledge transfer and upgrading domestic service capabilities. Tunisia, meanwhile, has experienced slower progress in developing export-oriented services following earlier integration gains, with structural constraints affecting its ability to maintain momentum.
Analysts note that the future of services-led development will depend on how effectively countries expand digital infrastructure, skills development, and access to global networks. Emerging technologies, including automation and artificial intelligence, are also expected to reshape labor demand within knowledge-based service sectors, raising the importance of early investment in capabilities.
The analysis concludes that while services can play a role similar to manufacturing in driving development, this outcome is limited to specific high-productivity, globally integrated sectors. Broad-based economic transformation will depend on policy choices that support innovation, skills, and international connectivity rather than expansion of services alone.
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