The underdeveloped service sector has the potential to become a new engine
of economic growth in developing Asia where traditionally export-oriented
manufacturing has powered the economies. The central objective of this
chapter is to empirically analyze the prospects for the service sector as a future
engine of growth. Our analysis of 12 Asian economies indicates that the service
sector has already contributed substantially to growth in the past and that somewhat
surprisingly, labor productivity in services has grown at a healthy pace. Overall there
is substantial cause for optimism about the role of the service sector as an engine of
growth though in countries where the sector is currently struggling like the Republic
of Korea and Thailand, developing it will be more challenging.