Do service sectors need core sectors to improve their productivity?

Sachiko Kazekami ()
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Sachiko Kazekami: Chukyo University

Eurasian Economic Review, 2017, vol. 7, issue 3, No 5, 389-410

Abstract: Abstract Examining Japanese micro-data, this study demonstrates that large core sectors (specialized or manufacturing sectors) in a local economy improve the productivity in the local non-tradable service sectors, and thereby increase employment. The size of service sector demand is determined by the size of the local economy, which, in turn, is determined by these large core sectors. The core sectors are generally sectors with tradable goods and services and their demand is not limited by the local market size as their goods and services supply multiple regions. A large demand for the service sectors induces heightened competition and improves their productivity through Darwinian selection or efficiency improvements within firms. Moreover, the spillover effect from core sectors might affect local service sectors. As a result, a 1% increase in added value in the specialized sectors in the previous estimation period, as well as a 1% increase in the change in added value in the specialized sectors, and a 1% increase in added value in the manufacturing sectors in the previous estimation period affect an increase in the productivity of the service sectors by approximately 4–5, 4 and 2.5%, respectively. Moreover, an increase of 100 thousand dollars of added value in the specialized sectors increases employment by 26 employees in the local service sectors. Furthermore, this study confirms efficiency improvements within firms as a productivity mechanism.

Keywords: Productivity of service sectors; Employment in service sectors; Local economy; Manufacturing sectors; Specialized sectors (search for similar items in EconPapers)
JEL-codes: D24 J21 O47 R11 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s40822-017-0073-1

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