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For decades, the dominant narrative of economic development was relatively straightforward: countries industrialize, manufacturing expands, productivity rises, and incomes converge. That conventional growth model is increasingly under strain. Manufacturing is no longer the universal escalator it once appeared to be; automation, fragmented global value chains, and rising capital intensity have made it difficult for latecomers to replicate the historical East Asian development experience where economies achieved rapid growth and income convergence through export-oriented industrialization and manufacturing expansion.

 

A quieter but potentially more decisive transformation is unfolding: the rise of services as a possible engine of structural change. The critical question is no longer whether services matter, they already dominate employment and GDP in most developing economies, but whether any category of services can replicate the productivity, tradability, and spillover effects historically associated with manufacturing.

 

A new analytical framework helps clarify this distinction by separating services into three structurally different categories : i) Knowledge Services (ICT and professional business services) which exhibit manufacturing-like characteristics such as tradability and foreign exchange generation capacity; ii) Enabling Services (transport, logistics, finance) which facilitate trade but generate limited independent value capture; and iii) Local Services (retail, hospitality, health, education, arts, and personal services) which absorb labor but cannot drive export-led growth.

 

This taxonomy is more than conceptual; it reshapes how policymakers should think about “services-led growth.” Taken together, the evolving constraints on manufacturing-led development and the heterogeneous nature of services suggest that there is no single “services revolution” that can substitute industrialization. Instead, development strategies must become more selective and structurally informed, distinguishing between services that merely absorb labor and those that can scale productivity, integrate into global markets, and generate foreign exchange.

 

In this context, the central development challenge is not to shift from manufacturing to services, but to identify and deliberately expand the segments of services that can play an industrial-equivalent role in growth. Countries that succeed in building competitive knowledge services ecosystems, while upgrading enabling services and gradually formalizing local services, are more likely to achieve sustained productivity growth and deeper structural transformation.

EXPERT COMMENTARY

Can Services Replace Manufacturing in Developing Economies?

 

Hinh T. Dinh, Karim El Aynaoui

 

As manufacturing becomes harder to scale, only globally connected, knowledge-intensive services can drive productivity and growth. From Morocco to India, success depends less on expanding services than on building the skills and digital infrastructure that make them competitive. With AI accelerating change, countries that fail to invest in skills and digital capabilities may miss a rapidly closing development window... Read more

 

 

A NEW FRAMEWORK TO ASSESS SERVICES LED DEVELOPMENT

A Framework to Assess Services as a Driver for Economic Growth and Structural Transformation

 

Hinh T. Dinh

 

Historically, manufacturing has served as the primary pathway to economic development, offering strong scale economies, learning-by-doing effects, and the capacity to generate the foreign exchange necessary to import capital goods and technology. However, advances in robotization and artificial intelligence (AI) are fundamentally undermining manufacturing’s traditional role, making it increasingly skill- and capital-intensive while limiting its ability to absorb labor. This technological transformation forces developing countries to consider service-led development strategies, but most services exhibit low productivity, limited tradability, and minimal capacity to generate foreign exchange... Read more

 

 

CASE STUDIES

Morocco’s Services-Led Development: Scaling Quality into Economic Momentum

 

Hinh T. Dinh

 

Morocco has relatively advanced knowledge services, especially ICT, professional services, and administrative support, with strong international GVC integration, notably via Casablanca and Tanger Med. However, these sectors remain too small to generate broad structural spillovers. The key point is that Morocco’s main constraint is not capability but scale, requiring expansion of high-value services to achieve self-sustaining growth momentum... Read more

 

 

Tunisia’s Services-Led Development: Reclaiming an Interrupted Trajectory

 

Hinh T. Dinh

 

Tunisia initially had strong knowledge-services (KS) positioning with high foreign input integration, even comparable to EU15 levels. However, this advantage eroded over time as KS sectors de-integrated from global value chains and shifted toward weaker domestic and public-sector dominance. The key point is that Tunisia must stabilize macroeconomic conditions and rebuild scale in professional, technical, and ICT services to reverse a declining structural trajectory... Read more

 

 

Egypt’s Services-Led Development: Navigating the Knowledge Gap and the Suez Paradox

 

Hinh T. Dinh

 

Egypt’s economy is dominated by enabling services tied to the Suez Canal and large local services, while knowledge services remain structurally small and weakly integrated. Although Egypt shows some upstream GVC presence, it has limited use of foreign knowledge inputs, constraining productivity and convergence. The key challenge is to link fragmented knowledge-services pathways while avoiding crowding-out from Suez-driven service expansion... Read more

 

 

THE OXFORD HANDBOOK OF THE MOROCCAN ECONOMY

Composition and Performance of the Moroccan Manufacturing Sector

 

Taoufik Abbad and Karim El Mokri

 

Since independence, industrialization has been one of Morocco's strategic priorities. This study analyzes the evolution of the manufacturing sector between 2000 and 2025, highlighting the dynamics that have shaped its transformation. It examines the transition from traditional industries, such as textiles, to higher value-added sectors, including automotive, aeronautics, and electronics, and its impact on the restructuring of the industrial landscape... Read more

 

>> Hear from the Authors

 

Development of the ICT Sector and the Digitization of Morocco

 

 Abdessalam Saad Jaldi and Raja Bensaoud

 

Information and communication technologies (ICTs) are recognized as catalysts for economic development and levers for economic and social inclusion. ICT has a transformative impact by building digital economies such as e-commerce and digital payments, boosting productivity across all sectors, and improving e-governance... Read more

 

>> Hear from the Authors

 

PODCAST

Building an Ecosystem for High-Growth Firms in Africa

 

Naomi Kirungu

 

In this podcast we discuss the key conditions needed for high-growth firms to emerge and scale across Africa. We highlight the importance of enabling ecosystems built on access to finance, supportive policies, strong networks, and business support for SMEs. The conversation also addresses the structural challenges faced by African entrepreneurs, as well as the critical role governments and regional integration initiatives can play in fostering sustainable economic growth across the continent... Listen

 

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