The Perils of Overstating Service Sector Growth Potential: A Study of Linkages in Distributive Services

Abstract

The export potential of services has been assessed without regard to forward and backward linkages. Yet regional service sector growth is often associated with three factors: the displacement of manufacturing functions into service establishments, the marketing role of manufacturing-displacing imports, and locational shifts toward customer sites. Many services remain locationally linked to suppliers and buyers, with no net gain to the regional economy. In addition service gains may be temporary, associated with cyclical or abnormal business conditions. In the case of steel service centers, which grew rapidly in the early 1980s to account for 25% of all steel sales, employment gains were largely attributable to the spin-off of steel manufacturing functions and to opportunities for marketing imported steel. Eventually, the growth trend tailed off as macroeconomic factors (recovery from recession and the fall of the dollar) restored the relative profitability of the steel industry and enabled it to "learn" flexibility from service center pioneers. Economic development planners should assess service sector potential in light of such linkages and dynamics.

Multipolarity and the Layering of Functions in World Cities: New York City's Struggle to Stay on Top*

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