The Role of Service Industry in the Economic Development

Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol 3, No 5, 2012 www. iiste. org The Comparative Growth of Service Sectors in Bangladesh Mohammad Shahidul Islam1, Md. Musa2, Rajib Kanti Das3 1. Assistant Professor, School of Business, University of Information Technology and Sciences, 40/1 Jakir Hossain Road, Khulshi, Chittagong, Bangladesh Tel: 88-01190-955692 E-mail:[email  protected] com 2. Lecturer, School of Business, University of Information Technology and Sciences, 40/1 Jakir Hossain Road, Khulshi , Chittagong, Bangladesh,Tel: 88-01819-619269 .E-mail: [email  protected] com 3. Assistant Professor, Faculty of Business Administration, BGC Trust University Bangladesh * E-mail of the corresponding author: [email  protected] com Abstract The Economy of Bangladesh is classified into three sectors. Of these, the average contribution of service sector, industry sector, agriculture sector to the GDP are 49. 33%, 28. 42% and 22. 42% resp ectively. So, the service sectors contribute most of the development of national economy.The research aims are to analyze the comparative contribution of service sector with other sectors, the impact of trade liberalization of service sector and to provide the recommendations for development of service sector. It is taken a sample of ten years data of GDP from 2000-01 to 2009-10 for analyzing the comparison of service sector with other sectors (industry and agriculture). The average growth rates between service sectors and industry sectors or agriculture sector or total GDP are analyzed with‘t’ test. The average growth rate of service sector, inudsty sector, and agriculture sector are 6. 17%, 7. 49%, 3. 21% respectively.The growth of service sector is more than the agriculture sector but less than the industry sector (result of‘t’ test). The paper also reveals that total trade deficit of service is increasing over the year. The average employment of Agricul ture, Industry, Service to total employment are 58. 89%, 12. 39% and 25. 36% respectively. The paper emphasizes for the development of Tourism sector, Software, Transportation and Financial srvice, Education with quality, etc. Keywords: GDP, Service, Agriculture, Industry 1. Introduction The Economy of Bangladesh is growing one. It is basically divided into three basic sectors viz.Service, Agriculture and Industry. Among the Economic Sectors in Bangladesh, Service sector is most important. The contribution of service sector to the GDP is about 50% (Bangladesh Economic Review-2010). So, Service sectors influence the development of national economy. There is a latent demand for services in Bangladesh. To specify the need of services for huge population of Bangladesh, such sectors are to be opened for private entrepreneurs with required control. The enormous contribution of service sector and an increasing trend therein have played an important role in high growth of GDP.The analysis o f last few years’ data gives a clear idea on the phenomenon. The contribution of the industry sector to the economy of Bangladesh has been increasing day by day. For the purpose of national income accounting, Bangladesh Bureau of Statistics (BBS) divides the economy into fifteen sectors (Bangladesh Economic Review-2010, Ministry of Finance). 2. Problem statement From the growth of overall size of Economy, it is difficult to identify the significance of specific sector. Proper nurturing of significantly contributory sector, the growth of Economy may be resisted.Previously there was no difference between Services and Products. Service concept is the modern issue in the world. The most of the business is related to services. Even the product itself provides the service to the customers. So the services are the vital issue now. The economic sectors classified by Bangladesh Government are Hotel and Restaurant, Retail trade and Wholesale trade, Transportation and Communication, Rea l state and Renting, Financial Institution, Public Administration and Defense, Education, Health and Social Services, Community and Personal Services are included under Service Sectors.So they occupy a major share of total economics sectors. As a result, importance of service is significant. For Economic development we always think regarding industry and agriculture sectors rather service sectors. But major sector in the economy is service sector. In the modern world, service is required in every phase of life. People expect better service. Our public sectors 178 Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol 3, No 5, 2012 www. iiste. org including public enterprises are largest sectors in the economy. But these sectors are losing concern.The public sector is unable to provide competitive service. So, people go to private sectors such as financial institutions, transportation, hospitals, educational institutions, and communication media for better service. But the growth rate of service sectors is either below expected level or not as per its importance in the economy. From this research the problems of service sectors are identified. For increasing the living standard of the people the service concept has come to lime light. Service marketing and service management will get the importance to develop the service sectors in Bangladesh.The research aims are to analyze the comparative contribution of service sector with other sectors, the impact of trade liberalization of service sector and to provide the recommendations for development of service sector. 3. Objectives of the Study Some specific objectives are set for this research. The principal objective of this study is to evaluate the comparative position of service sector. To accomplish this basic objective, following specific objectives are set: i. To conduct the comparative analysis of service sector with Agriculture and Industry sectors. ii..To analyze the im pact of Liberalization on Service sectors iii. To provide the recommendations for development of Service sector. 4. Methodology This research has used mostly secondary data have been used for analysis. Data have been collected from Bangladesh Economic Survey, Bangladesh Bureau of Statistics, Bangladesh Bank, World Bank, and Internet web sites, Books, Newspapers, Magazines and Journals. We have used required data for ten years from 2000-01 to 2009-10 for analyzing the contribution of economic sectors, growth rate of each sectors viz. service, industry and agriculture.Data of service export and import from 2004-05 to 2009-10 (five years) and the data of employment contribution for 9 years have been explained. 4. 1 Analysis of data: The data have been analyzed using graph, chart and some other simple statistical tools. The growth rate of service sectors (trend) is shown by graphical presentation. The total contribution of service sectors and sector wise share of major sectors are shown graphically. The average growth rates between service sectors and industry sectors or agriculture sector or total GDP have been compared by student’s‘t’ test. 4. 2 Hypothesis test 4. 2. H 0 :  µ1 =  µ 2 (There is no significant difference between the growth rate of service sectors and industry sectors. ) 4. 2. 2 H 0 :  µ1 =  µ 2 (There is no significant difference between the growth rate of service sectors and agriculture sectors) 4. 2. 3. H 0 :  µ1 =  µ 2 (There is no significant difference between the growth rate of service sectors and the growth rate of total GDP) 5. Analysis and Results 5. 1. The Contribution of Service Sector Off all the sectors, service sector is prominent one. Service sector has the growing potential to be driver of sustainable economic growth and significant poverty alleviation in Bangladesh.Service sector in Bangladesh is the largest sector. From the table 2(a), it is observed that the contribution of the service sector is a verage 49. 33%. It is steady over the period. The contribution of service sectors are 48. 77% in 2000-01 and 49. 90% in 2009-10. Figure-1 demonstrates contribution of different sectors in GDP. The groth rate of srvice sector is steady. The average growth is 6. 17%. The growth rates are 5. 43% ,6. 40%, and 6. 59% in 2001-02, 2005-06, 2009-10 respectively. 5. 2. Growth of Sub-sectors of Service Sector Growth rate of service sector is consistnent and contineous.From the Table 1(b), it is shown that the four sub sectors –(i) Trade (ii) Transport, storage and communication (iii) Realstate renting and other Business activities (iv) Community, social and personal services contribute more in GDP which are 14. 06%, 10. 07%, 7. 98%, 7. 39% 179 Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol 3, No 5, 2012 www. iiste. org respectively. But The growth rate is more for the Education, Banking, Public administration, Transportation which are 8. 4 2%,8. 13%, 7. 88% ,7. 48% respectively. 5. 3.Comparative Analysis of Service Sector with Agriculture and Industry Sector From the comparative presentation of the sectors, it is found that service sector is sustaiable in terms of growth and contribution to toal GDP. From the Table 2(a), 2(b) and figure -2, it is shown that the average contribution of service sector, industry and agriculute sectors are 49. 33%, 28. 42%, 22. 25% respectively. So, the service sector is the half of total sector of economy. The growth rate of service sector, inudsty sector,and agriculture secture are 6. 17%, 7. 49%, 3. 21% respectively.Here, from the figure-2, it is seen that the contribution of service sector is steady. The contribution of industry sector is increasing with the reducing trend of agriculture sector. Here, aparently it is seen that the average growth rate of service sector is more the agriculture sectors and the total GDP growth and the average gorwth rate of industry sector is slightly mo re than the service sector. Now we shall statistically test whether the average growth rate of service sector is more than the agriculture sectors and total GDP growth and whther there is significant difference of growth rate between service sectors and industry sector. . Hypothesis test Since in the given data variances of population are unknown and the sample size is small we have used t-test from the table -6. The result of hypothesis test is in table 3. 6. 1. H 0 :  µ1 =  µ 2 (There is no significant difference between the growth rate of service sectors and industry sectors. ) Table 3: Paired Samples Test Details 95% Paired Std. Std. Confidence Differences Deviation Error Interval of the Mean Mean Difference Lower Upper 1. 1152 . 3717 -2. 1783 -. 4639 t df Sig. (2tailed) Pair 1 Growth rate of Service sector – Growth rate of Industry sector -1. 211 Growth rate of Service sector – Growth rate of Agriculture sector Growth rate of Service sector – Growth rat e of Total GDP sector 8 3. 554 .007 Pair 2 2. 7722 1. 2957 . 4319 1. 7763 3. 76826. 419 8 . 4806 . 1602 7. 3847E- . 6650 1. 845 8 02 .000 Pair 3 .2956 .102 Source: Compiled by authors through SPSS The table value is -2. 306 So, the calculated value (-3. 554) is outside the critical region. So, the alternative hypothesis is accepted. There is significant difference between the growth rate of service sector and industry sector.The growth rate of industry is more than that of service sector. 6. 2. H 0 :  µ1 =  µ 2 (There is no significant difference between the growth rate of service sectors and agriculture sectors) The table value is 2. 306. The calculated value(6. 1. 77) is outside the critical region. So, the growth of service sector is more than the growth of agriculture sector. 6. 3. H 0 :  µ1 =  µ 2 (There is no significant difference between the growth rate of service sectors and total GDP) The table value is 2. 3306. The calculated value (t=1. 84) is inside the critical region. So, the null hypothesis is accepted.Though the average growth rate of service sector is more than the growth rate of total GDP, but there is no difference with t test. 180 Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol 3, No 5, 2012 7. Trade of service and Trade liberization www. iiste. org Trade liberlization has opened a new horizon for service exports. Service export is the amount which is paid by the foreign national for using the service of Bangladesh. Service import is the amount which is paid by the Bangladeshi national for using the service of other countries. GATS was formed to eliminate the trade barriers.Here we shall see the impact of trade liberization on the service sectors of Bangladesh. From the table 4, the figure-3 is drawn. It is found from the figure -3 that the import of service average Tk. 199368 million is more than the export of service average Tk. 112214. 5 million. The total trade deficit is increasing over the year. The average rate of growth of service export is more than service import which are 16. 16% and 15. 89% respectively. This is a good symptom for Bangladesh. 8. Employment opportunity in Service sector Service sector has created a great scope for employment.Bangladesh is a labor intensive country. Population is an important resource of Bangladesh. From the table 5 (data is taken from world Bank data bank) the figure-4 is drawn and it is shown that average employment of Agriculture, Industry, Service to toal employment are 58. 89%, 12. 39 5and 25. 36% respectively. But employment of service sector is increasing. The employment of industry sector is increasing but agriculure sector is decreasing. 9. Recommendations for Service Sectors After analysis, it can be said that the contribution of service sector is about 49. 22% and the growth rate of service sector is 6. 75%. The contribution is about half of the total economic sectors and the growth rate is more than the avera ge growth of GDP. Emphasis is given on the service sector for development. Since the industry sector is growing rapidly (7. 49%), support can be given by providing the quality and smooth service. The employment in service sector is increasing day by day. So, there is lot of opportunity for employment in this sector. Though there is negative Trade Balance of service of Bangladesh, the growth rate of srvice export is more than that of import. It is a good symptom for us.So we have to emphasize the service export such as Tourism, Software, Transportation and Financial srvice etc. The prospects of some promising service sectors are pointed out below. 9. 1. Development of Tourism Tourism is one of the most promising sectors for Bangladesh with her huge natural beauty, heroic historical background and archaeological resources (Das & Chakroborty 2012). Bangladesh is a country of natural beauty. She has lot of tourism places. These places are of different interest like beaches, historical p laces, archaeological sites, religious palaces, forest and jungle etc. . 2. Development of Software and IT With the passage of time, the globe is being changed from analogue to automation. During last few years Bangladesh showed enormous success in Software and IT Sector which can enlarge the extent of her service market (BASIS 2010). The current size of Bangladesh IT Industry and software/ITES industry is still smaller compared to the overall economy and the number of population (over 150 million). Over the last few years the industry has been grown considerably and is expected to grow at that rate for some time. 9. 3.Information Communication Technology (ICT) With the hope of great development, the govrnment of people republic of Bangladesh introduced National Information and Communication Technology (ICT) Policy in October 2002. This policy document guides the development of a country-wide ICT-infrastructure for human resources development, governance, e-commerce, banking, public utility services and all sorts of on-line ICT-enabled services by 2006. 9. 4. Improvement in Transportation Transportation is an important sub-sector of total service sector. It includes different type of transport for example road transport, waterways, railways, and airlines.Of these, road transport is mostly used means of transport. Road transport in Bangladesh is a private sector affair operating predominantly in domestic routes. 181 Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol 3, No 5, 2012 www. iiste. org Rates are among the cheapest in the world. Express and non stop services are available. Total Highways is 204,022 km of which paved is 25,095 km and unpaved is 178,927 km (1996 est. ) (bangla2000. com). 9. 5. Quality Financial Services Financial service is another important part of total service sector in Bangladesh.It is a promising sub sector which consists of the Bangladesh Bank (the central bank), four nationalized commerci al banks (NCBs), 5 stateowned specialized banks (SBs), more than 30 private sector commercial banks (PCBs) and more than 9 foreign commercial banks (PCBs). The rest of the financial sector consists of more than 29 non-bank financial institutions, the capital market, 3 general and 17 life insurance companies, the cooperative banks and the microfinance institutions. 9. 6. Development of Education sector For increasing of people and literacy rate, the demand of higher education is increasing.The technical institution, Business education, health education create the demand to the people. The development of government and private universities is the indicator of growing demand of education sector. 10. Concluding Remarks The contribution of service sector is about 50 percent of the total GDP. So, the growth rate of GDP depends on the service sectors. The service sector provides the support for the development Industry sector and agriculture sector. For the international trade (export and import), the smooth transportations, financial and insurance service is required.For the improvement of the GDP sector, it has to give special emphasize on service sectors. There is lot of scope of development of service sector. Bangladesh is providing transit and transshipment to India, Nepal and Bhutan that will increase return from the transportation and communication sector. The manufacturing sector is growing rapidly. So, the need of financial service and education is increasing in future. Tourism, hotel service is promising in Bangladesh. The trade liberalization on service will cause the opportunity for service export. So, we have to take the initiatives for development of service sectors.This paper has analyzed the comparative contribution of service sector, the growth of service sector, service export and the employment in service sectors. There is scope for further research about the ways of development of service sectors. 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Financial Services and the World Trade Organization:Liberalization Commitments and the World Trade Organization, World Bank, 1818 H Street NW, Washington, DC. Ministry of Finance(2010), Bangladesh Economic Servey 2010, Ministry of Finance, Dhaka. Mascarenhas, Romeos, Service Sector Management, 1st ed. , Mumbai, VipuPrak ashan, 2002. 3. 5. Tour to bangladesh. com (Tour Operator of Bangladesh) 2010, Tourism Vision 2020, Bangladesh, accessed 2 May 2011, http://www. tourtobangladesh. om/Bangladesh-Tourism-Vision-2020. php Transportation, accessed 2 May, 2011 Appendices Table 1(a): Contribution of total service sector in GDP 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 49816 2519 37464 6608 25033 10505 9624 8373 23832 173774 6. 60 7. 31 7. 48 8. 13 3. 67 7. 88 8. 42 7. 02 4. 14 6. 17 Trade (Retail & Whole sales Hotel & Restaurants Transport, Storage & Communication Banking & Insurance Real Estate, Renting & other Business Activities Public Administration and Defense Education Health and Social Work Community, Social and Services Total Service Personal 8021 1335 19579 3270 18096 5322 4651 4548 16538 101360 29868 1427 20863 3489 18715 5637 5004 4789 17073 106865 31687 1527 22292 3722 19374 5932 5384 5059 17640 112617 33770 1635 23676 3983 20068 6351 5 798 5371 18340 118992 36155 1751 25552 4338 20801 6860 6256 5768 19082 126563 38596 1881 27592 4707 21569 7420 6822 6217 19863 134667 41700 2023 29809 5139 22381 8044 7433 6693 20733 143955 44543 2176 32357 5596 23221 8543 8013 7163 21731 153343 47309 2341 34949 6099 24106 9142 8658 7678 22753 163035 Source: Bangladesh Economic Review, 2010 Table 1(b): Contributions and growth of sub sectorsService sub-sector Trade (Retail & Whole sales Hotel & Restaurants Transport, Storage & Communication Banking & Insurance Real Estate, Renting & other Business Activities Public Administration and Defense Education Health and Social Work Community, Social and Personal Services Total Std. of Service sub-sector 7526. 08 398. 47 6109. 71 1140. 47 2336. 93 1678. 77 1647. 75 1289. 33 2471. 01 24576. 02 Std. of Service sub-sector growth 0. 75 0. 29 0. 80 1. 04 0. 14 2. 85 1. 17 1. 17 0. 58 0. 54 Avg. Contribution % 14. 06% 0. 68% 10. 07% 1. 72% 7. 98% 2. 71% 2. 48% 2. 27% 7. 37% 49. 33% Avg. f subsecto r total 38146. 50 1861. 50 27413. 30 4695. 10 21336. 40 7375. 60 6764. 30 6165. 90 19758. 50 133517. 10 Avg. of subsector growth Source: Bangladesh Economic Review, 2010 183 Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol 3, No 5, 2012 Table 2(a): Sector wise contribution in GDP (in percentage) 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 www. iiste. org Contribution of Agricultures Contribution Industry Contribution of service Total 25. 03 26. 20 48. 77 100 23. 98 26. 75 49. 27 100 3. 47 27. 24 49. 30 100 23. 08 27. 69 49. 22 100 22. 27 28. 31 49. 42 100 21. 84 29. 03 49. 14 100 21. 38 29. 45 49. 17 100 20. 83 29. 70 49. 47 100 20. 48 29. 86 49. 66 100 20. 16 29. 95 49. 90 100 1. 6 1. 38 0. 31 0. 00 22. 25 28. 42 49. 33 100 Source: Bangladesh Economic Review, 2010 Table 2(b): Sector-wise growth of GDP (in percentage) 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2 008 2008-2009 2009-2010 Average 3. 21 7. 49 6. 17 5. 88 112214. 5 16. 16% 51510. 798 199368 15. 89% 24606. 842 (87153. 5) 16. 69% Average Agriculture Industry Service 0. 01 6. 53 5. 43 3. 8 7. 26 5. 38 4. 09 7. 60 5. 66 2. 21 8. 28 6. 36 4. 94 9. 74 6. 40 6. 63 4. 56 8. 38 6. 90 6. 43 3. 21 6. 78 6. 52 6. 19 4. 12 6. 46 6. 32 5. 74 4. 39 6. 42 6. 59 6. 00 1. 53 1. 13 0. 54 0. 68 Total GDP 4. 42 5. 26 6. 27 5. 96 Source: Bangladesh Economic Review, 2010 Table 2(c): Growth of service and other sector (Chain base) 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Average 7. 02 5. 61 5. 88 SDEV 28849. 471 Service 5. 30 5. 64 6. 17 7. 39 7. 78 7. 66 Other 3. 52 5. 14 6. 82 5. 59 6. 83 6. 01 Sectors Total GDP 4. 42 5. 26 6. 27 5. 96 6. 63 6. 3 growth Source: Bangladesh Economic Review-2010 Table 4: Service Receipts and Payments (in million Taka) 2004-2005 2005-2006 2006-2007 7. 02 5. 89 6. 19 7. 19 5. 21 5. 74 9. 05 5. 46 6. 00 1. 17 1. 00 0. 68 200 7-2008 2008-2009 Service Receipts 75067 89780 102352 129103 Growth of Service 19. 60% 14. 00% 26. 14% Receipts Service Payments 124871 156279 189649 231667 Growth of Service 25. 15% 21. 35% 22. 16% Payment Services(net) (49804) (66499) (87297) (102564) Growth of Service 33. 52% 31. 28% 17. 49% (net) Source: Bangladesh Balance of Payment-2010, Bangladesh Bank 122451 -5. 15% 236634 2. 4% (114183) 11. 33% 154534 26. 20% 257108 8. 65% (102574) -10. 17% 184 2009-2010 STDEV STDEV Average STDEV Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol 3, No 5, 2012 Table 5: Employment contributions Year 1984 1985 Employment in agriculture (% of total employment) 58. 8 57. 7 Employment in industry (% of total employment) 11 11. 5 Employment in services (% of total employment) 24. 2 26 Source: World development index, World Bank Table 6: Growth of economic sectors 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 ww. iiste. org 1986 57. 1 12. 5 26. 5 1989 64. 9 15. 4 14. 8 1991 66. 4 13 16. 2 1996 63. 2 9. 6 25 2000 62. 1 10. 3 23. 5 2003 51. 7 13. 7 34. 6 2005 48. 1 14. 5 37. 4 SD 6. 06 1. 95 7. 35 Avg. 58. 89 12. 39 25. 36 Agriculture 0. 01 3. 08 4. 09 2. 21 4. 94 4. 56 Industry 6. 53 7. 26 7. 60 8. 28 9. 74 8. 38 Service 5. 43 5. 38 5. 66 6. 36 6. 40 6. 90 Total GDP 4. 42 5. 26 6. 27 5. 96 6. 63 6. 43 Source: Bangladesh Economic Review-2010, Ministry of Finance 3. 21 6. 78 6. 52 6. 19 4. 12 6. 46 6. 32 5. 74 4. 39 6. 42 6. 59 6. 00 1. 53 1. 13 0. 54 0. 68 . 21 7. 49 6. 17 5. 88 Figure 1: Contrubution of Service, Industry and Agriculutre Figure 2: Comparative Sector-wise Growth Rate 185 Average STDEV Sectors Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol 3, No 5, 2012 www. iiste. org Figure 3: Service Export and Import Figure 4: Employment of Service Sectors. 186 This academic article was published by The International Institute for Science, Tech nology and Education (IISTE). 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