Academic journal article Journal of Southeast Asian Economies

Services and Economic Growth in ASEAN Economies

Academic journal article Journal of Southeast Asian Economies

Services and Economic Growth in ASEAN Economies

Article excerpt

I. Introduction

The ASEAN economies have shown remarkable economic performance, measured in terms of growth of gross domestic product (GDP) (see Table 1). Increasing sectoral specialization and competitive advantage in many ASEAN economies perhaps contributes to these ASEAN economies' phenomenal GDP growth rate. The growth and development of manufacturing industries and the presence of global corporations are thought to be facilitating the emergence of a service-dominated economy. It is noted that with increased globalization of economic activities and extensive overseas networks and connections by global corporations, many leading service-related firms have penetrated the Asia-Pacific region since the 1980s (Yeung 1996). The expansion of the service sector seems to play a crucial role in the economic development of the ASEAN economies, as services in general bind the other sectors of the economy such as manufacturing (see Shelp et al. 1984).

In general, the service sector has been traditionally deemed the residual tertiary sector, after the primary and secondary sectors (Toh and Low 1989). While the nature and the extent of the service sector is a much debated issue, its definition and scope is, however, more specifically defined by Hill (1977), Riddle (1986), and Bhagwati (1987). In fact, Gershung and Miles (1983) and Park and Chan (1989) have, in general, categorized service activities into two major groups: market and non-market. Market services include producer services (for example, banking and finances); distribution services (for example, transport and storage); personal services (for example, hotels and restaurants), and communications (for example, the Internet). The non-market services include social services (for example, health and education). The development of market services seems to have a significant impact on the ASEAN economies' service sector and their growth performance (as discussed in Section II).

The main objective of this article is to assess the proposition that the expansion in the service sector has been a determining factor of per capita economic growth in the ASEAN economies during the last three decades. The proposed methodology to explore this proposition is similar to methodologies common to the fast increasing literature on the new growth theory, for example, Barro (1991); Mankiw, Romer, and Well (1992); and Barro and Sala-i-Martin (1995). Data used in this study are from a cross-ASEAN country set for the period extending from 1965 to 1994.

The rest of the article is organized as follows. The next section describes the ASEAN sectoral composition. Section III presents the estimation framework followed by a discussion of the data in Section IV. The estimation results are presented in Section V. Section VI presents a discussion on the limitations of this study, and also highlights opportunities for further research. Section VII provides some concluding remarks.

II. ASEAN Sectoral Composition

Table 2 presents the data on ASEAN economies' sectoral composition. Two distinct features can be seen from the data. The first and foremost distinct feature is that the service sector is the dominant contributor to GDP in the Philippines, Singapore, Thailand, and Vietnam during 1995-99, while in Indonesia, the service sector's contribution to GDP was slightly below that of the industrial sector for the same period. The second distinct feature is that over the last two decades, the contribution of the agricultural sector to GDP has declined gradually in many ASEAN economies. Meanwhile, the share of services to GDP has increased over time in Brunei, Indonesia, the Philippines, Thailand, and Vietnam. The share of services to GDP is the highest in Singapore among all ASEAN countries. However, their contribution to Singapore's economy has remained almost steady even though they are the prime mover of the Singapore economy.

Another feature of ASEAN's service sector is the robust growth rates experienced in recent times. …

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