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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 27, No. 1, pp.7-40
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 2014
Received 15 Jan 2014 Revised 02 Feb 2014 Accepted 04 Feb 2014

Service-led Catch-Up in the Indian Economy: Alternative Hypotheses on Tertiarization and the Leapfrogging Thesis

Wooseok Ok ; Keun Lee ; Hyoseok Kim
Associate professor, Division of International Trade, Incheon National University, Tel: 82-32-835-8642, Fax: 82-32-835-0786 wooseokok@incheon.ac.kr
Professor, Department of Economics, Seoul National University, Tel: 81-2-880-6367, Fax: 81-2-886-4231 kenneth@snu.ac.kr
Department of Economics, Columbia University, Tel: 1-646-737-4661 hk2562@columbia.edu

JEL Classification: O11, O14, O53, O19, O25

Abstract

The experience of India in economic catch-up is unique when compared to other countries. First, the catch-up process of India was not only service-led, but also accompanied by a decoupling between manufacturing and services. Second, productivity performance in the service sector was higher than in the manufacturing sector in terms of the level as well as growth rate. Finally, exports in IT services led the tertiarization of the Indian economy. From this perspective, the trajectory of the Indian catch-up can be characterized as “path-creating.” Existing hypotheses on tertiarization do not fully account for such aspects of the uniqueness of the Indian experience.

The leapfrogging argument in Neo-Schumpeterian economics provides a more plausible explanation of the Indian experience. The ICT revolution and the shift from hardware systems to client-server systems have created new markets for the global services trade. This paradigm shift lowered the costs of entry, including fixed investments, for Indian IT service firms and helped close the experience and skill gaps quickly. The industry-specific characteristics of the IT services industry and the country-specific advantages of India further lowered the costs of entry. With steady strategic and organizational innovations, Indian IT service firms succeeded in securing competitive advantages in the global market.

Keywords:

Catch-up, India, IT services, Tertiarization, Technological leapfrogging

Acknowledgments

This paper is a re-writing, for English readers, of its Korean language version published as Ok (2013). The authors would like to thank two anonymous referees for helpful comments and the comments received during its presentation at the 2013 SJE International Symposium, held in September 2013 at Seoul.

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