the 1990s

FIGURE 1.3 Labor Productivity in Services Has Increased Consistently in LMICs since the 1990s

Value added per worker in LMICs, by sector, 1991–2018

Value added per worker (constant 2010 US$) 2,500

2,000

1,500

1,000

500

0 1990 1995 2000 2005 2010 2015 2020 Services Agriculture Industry

Source: World Development Indicators database. Note: Data for the “industry” sector include not only manufacturing but also mining, utilities, and construction. “Low- and middleincome countries” (LMICs), by World Bank income group classifications, had 1994 gross national income (GNI) of less than US$8,955.

the 1990s. Although the average value added per worker in the services sector consistently increased across LMICs between 1991 and 2018, industrial labor productivity was more volatile, sharply declining after the 2008–09 Global Financial Crisis (figure 1.3).6

In fact, among LMICs between 1995 and 2018, only those in the East Asia and Pacific region as well as Eastern Europe and Central Asia—on average—matched the experience of high-income countries in that their industrial labor productivity growth exceeded that of services.7 In contrast, labor productivity growth in the services and industrial sectors across South Asia, Sub-Saharan Africa, the Middle East and North Africa, and Latin America and the Caribbean was roughly comparable over the same period (figure 1.4).

These regional differences are not surprising given that export-led manufacturing has been the cornerstone of economic growth in East Asia since 1990—especially in China, whose share of global manufacturing value added increased fivefold, from less than 5 percent in 1990 to 25 percent in 2015 (Hallward-Driemeier and Nayyar 2018). Similarly, the offshoring of labor-intensive production from Western European countries benefited manufacturers in the Czech Republic, Hungary, and Poland. However, countries in Sub-Saharan Africa never broke into manufacturing production to a significant extent, while many Latin American and South Asian countries saw progress stall after a transitory pickup of economic growth.

What is also striking is that labor productivity growth in services in LMICs across all regions between 1995 and 2018—except in the Middle East and North Africa— exceeded that of high-income countries (figure 1.4). These narrowing productivity