The maturing of the manufacturing sector in developing Asia combined with
the relative backwardness of the service sector has made service sector
development a top priority. Our central objective is to broadly survey and
analyze the current state of the sector to assess its potential as an engine for
inclusive economic growth. Our analysis indicates that services are already an
important source of output, growth, and jobs in developing Asia; however, their
productivity greatly lags behind that of the advanced economies which implies
ample room for further growth. The impact of the service sector on poverty reduction
is less clear, but there is limited evidence of a positive effect. One key challenge for
all of Asia is to improve the quality of service sector data. Developing the sector
will be a long and challenging process; creating more competitive service markets
by removing a wide range of internal and external policy distortions is vital for
improving its productivity. As important as policy reforms are, complementary
investments in physical infrastructure and human capital will also be necessary to
achieve a strong service sector.