The industrial sector is dominated by manufacturing, so the growth accounts for the two are very similar in that growth has been driven by the increase in the factor inputs. As with agriculture, the contribution of TFP peaked in the early 1990s, and, but for the crisis years, it has been constant since then( figure 9). TFP in industry and the subgroup of manufacturing did not return to pre-crisis levels until 2004. A smaller contribution of TFP within total industry relative to manufacturing is consistent with the results for many countries that report constant or declining TFP in construction. Overall, the continued finding of a low TFP contribution can be traced to the relatively large factor share weight assigned to capital. However, it is difficult to argue for a larger adjustment of the compensation data of the national accounts. At least within manufacturing, the various categories of self-employed workers are not that significant
The service-producing sector has grown more slowly than industry and its growth is very heavily dominated by increases in the labor input. Services display a high capital-output ratio in this data set, but that is partly due to the inclusion of homeownership. The 1997-98 crisis has it greatest impact on the services-producing industries – particularly, finance – and there is little evidence of a significant recovery. Capital accumulation did slow sharply after 1997, but with the large decline in output, the capital-output ratio has increased. As expected, the result has been a substantial fall in the return to capital, and a shift of the factor weights toward labor – an increase from 60 percent in 1997 to 69 percent in 2003. Services has also had the greatest improvement in the educational skill of its workforce. Furthermore, the finance industry, a large component of the services sector, suffered the largest disruptions in the aftermath of the 1997-98 crisis. As a result of this multitude of factors, TFP growth in services turned highly negative after 1997. The longer-term prospective, however, may be more accurately measured by a focus on the 1977-1996 pattern of a small positive growth rate, 0.5 percent per year. Uncertainty about the outlook for productivity growth in services is the motivation for a more detailed examination of that sector in the following section.
Finally, it is striking that the estimated rate of improvement in TFP for the aggregate economy, 1.6 percent annually for the 1977-96 period in table 9, exceeds that of any individual sector. In fact, the average annual rate of increase in value added-weighted TFP growth is only 0.5 percent for 1977-96 and it is zero for 1977-2004. The difference, 1.1 percent annually, is a measure of the gains from resource reallocation. That is, the largest portion of the improvement in overall TFP is the result of moving workers from the low-productivity agricultural sector to industry and services.