Two Types of Tertiarization: Household Demand, Production Networks, and the Rise of Services

2026-08-06

AI Summary

This study investigates whether the expansion of the service sector is driven primarily by household consumption or by non-household demand—including production networks, investment, exports, and government expenditure. Leveraging input–output tables from 76 economies over 1995–2022, the authors develop a novel “dual-track tertiarization” analytical framework by integrating the Leontief inverse with Shapley value decomposition to precisely attribute service-sector value added to distinct final demand categories. The findings reveal that conventional measures based on service employment or output shares obscure underlying shifts in demand structure. Among the 65 economies that experienced accelerated tertiarization between 1995 and 2018, 77% exhibited declining household orientation, with a median of 73% of service-sector growth attributable to production-system channels—making this the dominant driver in 80% of these economies.

Abstract

I measure whether the rise of services is ultimately supported by household consumption or by non-household demand through production networks, investment, exports, and government. Using harmonized input-output tables for 76 economies over 1995-2022, I attribute service value added to its ultimate domestic final-demand category and measure the household orientation of each service economy in both levels and growth. The conventional service share does not reveal the type: it is negatively correlated with household orientation, and only about four in ten tertiarization episodes are majority-household. Among the 65 economies whose service share rose over 1995-2018, 77 percent became less household-oriented; the share is 75 percent under a two-percentage-point material-change threshold. Yet household-supported production becomes more service-intensive with income because households' aggregate position falls faster. A one-type benchmark has no purchaser margin; a two-type extension gives the condition for this reversal. An exact Leontief accounting and Shapley decomposition allocate a median 73 percent of service-share growth to production-system channels, which are the largest contribution in 80 percent of economies with materially rising shares. The decline in household orientation is instead allocated mainly to aggregate final-demand structure. The service share records how much service activity exists, not which economic transformation produced it.

Problem

• tertiarization
• household demand
• production networks
• service share
• final demand

Innovation

• tertiarization
• input-output analysis
• Leontief accounting
• Shapley decomposition
• household orientation