Drivers of GDP

Gross Domestic Product (GDP) is an important measure of any country’s economic health, and is often used as an indicator of a country’s overall economic status and health. GDP is calculated by adding up total value of all goods and services produced within a country’s borders over a certain period of time , say a financial year.

Both services and manufacturing sectors have a significant impact on a country’s GDP though their relative contribution may vary depending on a country and its economic circumstances.

In general, the services sector tends to be the largest contributor to GDP in developed countries, while the manufacturing industry remains a larger contributor to GDP in developing countries. This is because developed countries typically have gone through a period of industrialization and have a more mature service sector, while developing countries are still in the process of industrialization, busy building manufacturing capacity.

It’s important to note that both sectors are interdependent and impact each other. For example, a strong manufacturing industry may create demand for services, such as logistics and marketing, while a strong service sector may support manufacturing through research , development and  allied services.

Ultimately, the relative contribution of service and manufacturing sectors to GDP depends on factors such as a country’s stage of development, its natural resources, labour force, and trade policies. A healthy economy will have a balance between the two sectors, as they both have unique strengths and challenges.

The services sector is made up of businesses that provide intangible products or services to consumers viz. everything from banking and insurance to hospitality and healthcare. In fact, the services sector is now the largest contributor to global economy, accounting for over 60% of global GDP.

One of the reasons why the services sector has become so important is that it tends to be more labour-intensive than the manufacturing industry. This means that service-based businesses are more likely to hire more workers, creating more jobs, which has a positive impact on employment generation and overall economic growth. Additionally, the services industry often relies on skilled workers, leading to better wages and a higher standard of living for workers.

On the other hand, the manufacturing industry is made up of businesses that produce tangible goods, such as automobiles, electronics, and textiles. Manufacturing has traditionally been a key driver of economic growth in many countries, particularly in developing economies. Manufacturing industry attracts huge investments in plant and machineries, thereby creating long term, fixed assets. Manufacturing industries provide employment opportunities for large numbers of workers, and generate significant export revenues for a country.

However, the manufacturing industry may also have significant environmental and social challenges and impacts,  related to resource extraction, waste production, and workers’ safety. Additionally, manufacturing industry tends to be more capital-intensive than the service industry, which means that businesses in this sector often require significant investment in equipment and technology. In general, the services sector remains the largest contributor to GDP in developed countries, while the manufacturing industry tends to be a larger contributor to GDP in developing countries. Both are important drivers of economic growth and employment, and a healthy economy needs to balance between the two.