The Economics of Vertical Disintegration

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The rapid growth of the service sector of the Canadian economy has been widely documented. Many studies in this series of research projects investigate the experiences of particular service industries. This study is unique because it focuses on vertical disintegration or contracting out, a potentially important component of every service industry's growth. Vertical disintegration or contracting out refers to manufacturing and other firms' decisions to contract out services previously produced in-house to specialized suppliers in the service sector. The major hypothesis we will investigate is that since contracting out accounts for much of the service sector's growth, the existing data overstate the extent to which the Canadian economy is becoming more service-intensive.

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