EXPLAINING INTERNATIONAL DIFFERENCES IN THE SHARE OF SERVICES IN REAL EXPENDITURE

Recent empirical evidence suggests that the share of services in real expenditure not only varies considerably across countries, but is negatively correlated with real income per capita. This paper formulates and tests a framework aimed at explaining international differences in real service expenditure shares in terms of underlying differences in exogenous factor endowments, populations and trade balances. The implications for changes in the service share of a growing economy are also noted.