This paper assesses empirically whether R&D spillovers are important and whether they originate from domestic or foreign activities. Data for eleven sectors are used to explain the impact on total factor productivity of R&D by the sector itself, by other Dutch sectors and by foreign sectors. We find that both domestic and foreign R&D are significant for the Dutch economy. The elasticity of total factor productivity with respect to R&D is approximately 35% for R&D by the sector itself, 18% for R&D by other Dutch sectors and 1*% for R&D by foreign sectors. Our findings also suggest that more R&D speeds up the absorption of foreign technologies. These results are confirmed in an analysis where we look at manufacturing and services separately. We find one difference: R&D in the service sectors helps to absorb foreign technologies, whereas R&D in manufacturing does not.

China’s growth potential has become a hotly debated topic as the economy has reached an income level susceptible to the “middle-income trap” and financial vulnerabilities are mounting after years of rapid credit expansion. However, the existing literature has largely focused on macro level aggregates, which are ill suited to understanding China’s significant structural transformation and its impact on economic growth. To fill the gap, this paper takes a deep dive into China’s convergence progress in 38 industrial sectors and 11 services sectors, examines past sectoral transitions, and predicts future shifts. We find that China’s productivity convergence remains at an early stage, with the industrial sector more advanced than services. Large variations exist among subsectors, with high-tech industrial sectors, in particular the ICT sector, lagging low-tech sectors. Going forward, ample room remains for further convergence, but the shrinking distance to the frontier, the structural shift from industry to services, and demographic changes will put sustained downward pressure on growth, which could slow to 5 percent by 2025 and 4 percent by 2030. Digitalization, SOE reform, and services sector opening up could be three major forces boosting future growth, while the risks of a financial crisis and a reversal in global integration in trade and technology could slow the pace of convergence.

Manufacturing-led development has provided the traditional model for creating jobs and prosperity. But in the past three decades the conventional pattern of structural transformation has changed, with the services sector growing faster than the manufacturing sector. This raises critical questions about the ability of developing economies to close productivity gaps with advanced economies and to create good jobs for more people. At Your Service? The Promise of Services-Led Development (www.worldbank.org/services-led-development) assesses the scope of a services-driven development model and policy directions that can maximize the model’s potential.