Role and Importance of Service Sector in the building of Economy

Oct 12, 2023 By Triston Martin

This article expounds on the important role played by the Service Sector in developing the economy of any country. It also discusses the Pros and cons of it, thereby giving a fair bit of clarity to the general readers about the sector specifics.

What is Service Sector?

The service sector, also called the tertiary sector, is generally termed as industries that produces impalpable services. It is also attributed to the economic sector that provides services to meet needs rather than producing goods in agricultural or industrial sectors. Examples of this sector include Banking, Transportation, Telecommunications, Real estate, Hotels, and Leisure Centres.

The service or tertiary sector is the third part of the tripartite economy. The primary sector is the first economic sector, which includes Agriculture, Mining, and Farm related business activities. In contrast, the secondary sector includes manufacturing and business activities that enable the production of tangible goods from raw materials produced by the primary sector.

Although the service sector is classified as the third economic sector, it accounts for most business activity in the global economy. Among the countries that rely heavily on the service sector are the top performers of the US, UK, Australia, and China.

The services sector is diverse and vast and can be divided into four basic sub-sectors:

  • Personal,
  • Distribution,
  • Producers, and
  • Social Services.

Distribution services primarily benefit the general public and offer attractive profits to dealers. It includes Pipeline transportation, Power transportation, Water transportation, telecommunications, Road transportation, etc.

Banks, insurance companies, and financial solution providers are the major contributors to Producer Services.

The sector also serves consumers and provides funding for investors. The Personal Services Division provides citizens with highly customized services such as housing and leisure centers. Finally, the social services sector covers the basic needs of life, such as health and educational facilities, as well as the protection and defense of the public.

Contribution of the Service Sector to the Country’s Economy

The services sector is the world's e largest and fastest-growing, accounting for 69% of global production, 35% of global employment, and nearly 20% of global trade. The service sector's share of total GDP is 47% in low-income countries, 53% in middle-income countries, and 73% in high-income countries. The sector accounts for a significant and growing share of cross-border trade and foreign direct investment, providing service providers with export opportunities and reducing the cost of import services. The rising trend in the service sector is expected to continue to become increasingly important through advancements in knowledge- and skills-based activities. Growing demand from consumers and businesses stems from the increasing role of IT and service-related activities in manufacturing.

The service sector contributes to all segments of the economy. More recently, however, technological advances in human capital have been reflected in the expansion of the service sector, dramatically changing the growth trajectory of many developing countries. With the increasing complexity of modern industrial organizations, Manufacturing activities are becoming increasingly service-intensive, both upstream (design, research, development, etc.) and downstream (marketing, advertising, etc.). A company's competitive advantage depends more heavily on the provision of specialized services, such as financing and after-sales service facilities than on production, which is becoming increasingly routine. Within the service, Intra-sectoral reliance on services is causing a catch-up phenomenon in the healthcare sector.


In developed countries, the roles of the industrial and agricultural sectors are receding as economies are expanding their Productivity and education, shifting to advanced services.

The service sector plays an important role in the following ways:

-Promote industrialization –

The tertiary sector plays a significant role in industrial production. An industry, for instance, requires the transportation of raw materials. Tertiary sectors include transportation. Transport is also required for distributing the finished product to the market. Aside from that, the health industry monitors the health of workers. Financial institutions handle industry finances through the service sector.

-Increased productivity –

The service sector includes both healthcare and education. Healthcare access and quality education make people more productive than those with bad health and less education. The economy is improved by increasing the productivity of workers in the service sector.

-High living standards –

There is generally a high standard of living among tertiary industry employees. Their salaries are higher, and their work environments are safer. They have access to luxurious amenities, making life more comfortable.

-Market Growth –

The quality of finished products produced in the tertiary sector is better. Service department personnel have also improved the manufacturing process. This will contribute to the growth of the market.


Following are the broadly highlighted PROs of a Service based economy: -

  • Allows for faster and more flexible adjustments during economic crises and recessions.
  • Minimize environmental damage caused by heavy industry.
  • Enables faster economic development than following traditional patterns.
  • Reduce material and energy consumption.
  • Expansion of knowledge.
  • More customer-oriented products for your satisfaction.
  • High adaptability.
  • Work Flexibility.
  • No requirements for an inventory, and easy to start.


Following are the broadly highlighted CONs of a Service based economy: -

  • Product reliability is high.
  • The trade deficit increases as more goods are imported, and fewer goods are exported.
  • Manufacturing jobs are being lost due to product outsourcing.
  • Need more qualified staff and workers.


Economic development in the country is largely dependent on the service sector. The country's educated and skilled youth contribute much of its GDP, and total value added. The service sector still has a need even when the economy is bad.

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