Role of Services in Regional Economy Growth

Abstract

Although the final demand-oriented export base paradigm dominates economic development theory and practice, its usefulness is increasingly questioned because of the changing structure of modern economies, empirical critiques of export-led growth strategies, and studies that decompose the actual sources of growth. The importance of service industries, especially local services and their role in inducing economic growth, requires a measure that includes both forward and backward linkages to empirically account for the complete role of an industry. Using data for New York State, we demonstrate how the input-output-based method of hypothetical extraction can more appropriately measure the economic linkage of a broader range of contemporary economic sectors (including services) than traditional, final demand-induced, backward-linkage multipliers. Our analysis provides empirical support for greater economic development attention to be directed toward local services.