Economic Development, Investment Dependence, and the Rise of Services in Less Developed Nations

Industrial transformation of the labor force has traditionally been viewed as affected by both the level of economic development and of investment dependency. In this study, using a sample of 45 less developed countries during the years 1960, 1970, and 1980, it was found that (a) it is crucial to distinguish between various service segments within the tertiary sector in the study of industrial transformation, (b) the rise of producer oriented services is mainly influenced by level of investment dependence while the growth of personal and social (consumer oriented) services is mostly affected by level of economic development (GNP), and (c) the observed relationships hold even when manufacturing structure of the labor force is controlled. The findings suggest that the effect of dependency on growth of production services reflects vested interests of external investors, while the effect of economic development on social and personal services reflects internal processes.