ABSTRACT
Based on its relatively high environmental impact, and high innovation potential, the manufacturing sector is a focus of attention, while the service sector, although representing some 60-70 per cent of GDP in most OECD countries, seems to be of less interest. If it is true that services are relatively more environmentally benign, it is also generally accepted that they are affected to different degrees by Baumol’s disease, which reduces their innovation potential, and along a dynamic path potentially undermines increases in environmental and economic efficiency. For example, using NAMEA panel data, Femia and Panfili (2005) show that, from an environmental point of view, services are more efficient than industry, although not by as much as might be expected and with highly branch-specific evidence, if we apply a dynamic lens. The reason for this is perhaps that the service sector induces transformation of matter, even though their ‘product’ is not directly material. Support for this view emerges from product life cycle and material flow analyses based on input-output frameworks. From a different perspective, Kander (2005) observes that there is good reason to be sceptical about the idea that the transition to a service economy will bring about dematerialization of production and consequent environmental improvements. This is because a shift to a service economy may be illusory in terms of real production, if it is generated by a fall in the price of manufactured goods relative to services, which in turn is caused by more rapid productivity growth in manufacturing than in services.
