Domestic services: The hidden key to growth

By Martin Baily, Diana Farrell, Jaana Remes

While often overlooked and neglected, the sheer size of local service sectors makes them powerful drivers of GDP growth in developing countries.

After years of neglect and undue regulatory constraints, local service productivity in most emerging economies lags far behind productivity in sectors developed for export. This is a pity.

MGI research suggests that, given the right competitive environment, local services can be a powerful source of wealth creation and jobs for middle-income economies – more powerful than offshore services could ever be.

MGI debunks a number of myths associated with local services and offers three ways for governments to harness their power:

  • recalibrate regulations across the economy
  • make them less burdensome
  • enforce them fairly and firmly in every sector
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