Role of Services in Regional Economy Growth

Abstract

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.