Rural Transformation, GVCs and the Rise of the Services Economy

Abstract

The rise of global agricultural value chains presents both opportunities and challenges for rural transformation and economic development. In this regard, we propose that the expansion of the service sector in developing countries significantly influences the development of agricultural value chain, promoting wealth creation. We posit that when global value chains in agriculture are used to interpret rural transformation, the crucial function of services is often underemphasised. We construct an interaction term between the productivity dynamics in services and the evolution of global value chain (GVC) over time. The key finding suggests that the coevolution of service sector development and participation in GVC strongly correlates with increases in agricultural sector productivity. The analysis highlights the importance of considering the stage of development and the specific service subsectors when examining the relationship between services, GVC and rural transformation. We propose that enhancing the institutional environment, particularly with respect to contracts within such value chains, enables a larger role for domestic actors in capturing this value.