A cross-country input-output analysis of intersectoral relationships between manufacturing and services and their employment implications

The paper examines the nature and the evolution of intersectoral relationships between manufacturing and services at different stages of industrialization, as revealed by a cross-country comparative analysis of input-output tables of 26 countries at different income levels. This paper suggests, among many other findings, that the intersectoral relationships between manufacturing and services generally characterize asymmetrical dependence. Namely, service activities tend to depend on the manufacturing sector as a source of inputs to a far greater extent than vice versa. Moreover, the employment absorptive capacity of the manufacturing sector is seriously underestimated, when one only measures the direct employment effect of the manufacturing sector and ignores the intersectoral demand of the manufacturing sector for service inputs and its income induced demand for various types of services. In effect, the capability of the service sector to generate and sustain a high level of employment critically hinges upon its vital linkages with the manufacturing sector.