Service Sector: Impact, Types, and Importance in the Economy

Posted on Jan 3, 2025 in Geography

Why Are Services Important?

The tertiary sector, or service sector, of the economy consists of all the activities which do not directly produce tangible goods, but which provide services to satisfy people’s wants and needs. These include the work of teachers, doctors, bus drivers, and hairdressers. Developed countries have experienced a ‘tertiarization’ which has increased the importance of this sector within total domestic production (GDP) and in providing employment.

What Types of Services Are There?

Services can be classified according to three criteria: provider, function, and how advanced they are. The provider can be public or private. The function can relate to business, transport, tourism, information, or government, among others. Traditional services do not use new technologies. In contrast, advanced services are those related to new technologies, and those which are knowledge-intensive, such as consulting services. These services require highly qualified providers.

Where Are Services Located?

Developed countries have the largest service sectors. The dominance of the tertiary sector in rich countries is mainly due to four factors:

  • The commitment of governments to providing basic total services.
  • The high income of their inhabitants: many services depend on high standards of living and high consumption levels.
  • The low employment in agricultural and industrial sectors because of mechanization and high productivity.
  • The tertiarization of industries: services, such as R&D, design, and distribution, are needed more.

Why Is Outsourcing Occurring?

For some services, such as call centers or certain IT services, the location of the provider is unimportant. As a result, developed countries often transfer some of these services to less developed countries where labor is cheaper.

What Are Transport Services?

Transport is the movement of people and goods from one place to another. This activity is made possible due to a combination of many human and material elements:

  • Modes of transport are the different vehicles used for travel: car, train, plane, or boat.
  • Infrastructure refers to the elements necessary for transport, roads for automobiles, railways and railway stations for trains, airports for aircraft, and ports for ships.

The Importance of Transport: Functions

In today’s world, transport has three main functions:

  • Economic: transport allows the exchange of goods and the everyday travel of the population.
  • Political: it reinforces the integration of the different regions and areas in a territory.
  • Social: it facilitates human relations, and activities such as leisure, and learning about other cultures.

The Formation of Transport Networks

A transport network is the infrastructure which is necessary for vehicles to circulate. It consists of a series of nodes and axes or lines, which connect the nodes. The level of development of a transport network is mainly measured by the degree of connectivity between all the nodes of a territory. Developed countries have a dense, structured, and hierarchical network.

Transport Systems

Road Transport

It is mostly used for personal travel, particularly short distances. It is important for transporting goods.

  • Main advantage: flexibility, no fixed routes.
  • Main disadvantages: more accidents than any other type of transport, traffic congestion, pollution.

Rail Transport

It is used to carry passengers for short distances (commuter train) and medium-range distances. It is also used to carry large and heavy loads.

  • Main advantage: large volumes of goods can be carried.
  • Main disadvantages: restricted to places connected by railway tracks.

Water Transport

Consists of sea and river transport, the latter on large navigable rivers.

  • Main advantage: relatively cheap.
  • Main disadvantages:
    • Slow: unattractive for long-distance passenger travel.
    • Requires ports with facilities for ships and cargo.
    • Water pollution: for example, from oil spills.

Air Transport

Air transport is mainly used for long-distance transport of passengers and goods of limited volume.

  • Main advantage: speed.
  • Main disadvantage:
    • Severe environmental impacts from noise and pollution (greenhouse gases).
    • High fuel consumption.
    • Airport infrastructure is necessary for operation.

What Is Trade?

Trade is the exchange of goods and services. In many countries, it is the most important type of service in terms of turnover and the number of workers employed. Trade depends primarily on three factors:

  • Transport and infrastructure development: normally, places with good communication, such as cities, have the most trade.
  • Market size: the number of consumers who can purchase goods or services.
  • A population’s wealth: if people have higher purchasing power, they will consume more.

Domestic Trade

Domestic trade takes place within a country’s borders. It distributes domestic and foreign products throughout the territory. Wholesalers and retailers supply products to consumers.

  • A wholesaler buys large quantities of a product, directly from the producer to sell later, generally to retailers.
  • A retailer sells products in small quantities to a customer.

Foreign Trade

Foreign trade takes place with other countries. Imports are the purchases of goods and services from a foreign country, while exports are the sales of goods and services to foreign countries.

What Is Tourism?

Tourism consists of the activities people do for pleasure during their travels.

The Growth of Tourism

There are diverse reasons for the rapid growth of tourism in developed countries:

  • Higher income levels: people have more money to spend. Workers enjoy paid holidays and have pensions on retirement.
  • Improved transport: this reduces costs and travel time. Thus, people are able to travel over a short period.
  • More leisure time: people have more days off and paid holidays.

Positive Effects of Tourism

  • The increase in wealth of receiving countries.
  • Activation of the economy and labor market: tourism boosts economic activity by stimulating construction.
  • The improvement and construction of infrastructure and the provision of health, education, sports, and other facilities in tourist areas.
  • New economic opportunities in rural areas can slow down the emigration of young people.

Negative Effects of Tourism

  • Regional economic imbalances: regions which are not tourist destinations suffer from lack of investments to improve living standards.
  • Seasonal and precarious employment: jobs are often temporary, require long hours, and are poorly paid.
  • Environmental impact: tourism can put pressure on natural resources or lead to the degradation of the environment. It can change the landscape, especially in areas with highly concentrated tourism. The main impacts are:
    • In coastal areas.
    • In mountain areas.
  • Changes in traditions: tourism can help restore local traditions which appeal to visitors. However, it can also change the traditional lifestyle of local inhabitants.

Tertiary Sector in the EU

The most significant activities in the tertiary sector are public services, trade, and business services. However, services related to information technology and communications have experienced higher growth in the last 25 years.

The Tertiary Sector in Spain

The tertiary sector is the most important sector in Spain. It has experienced the greatest development in recent decades and now provides about 70% of GDP and employment. About 99% of companies in the sector are small, with fewer than 50 employees. Together, they account for just over half of total turnover. Large companies generate 30% of turnover and employ almost a quarter of the workers in the sector.

Transport in the EU and Spain

The transport sector in Spain contributes 5% to GDP and employs 4.5% of the working population. Transport is of enormous importance for other economic activities such as industry, trade, and tourism. For this reason, and for its ability to condition a country’s competitiveness, transport receives a large proportion of investment. The aim is to achieve a balanced, fast, safe, flexible, and intermodal transport system, that is, one which can be used by various means of transport.

Ground Transport

In recent years, major investments in ground transport have had four objectives:

  1. Correct the radial nature of the transport system by building transverse sections between main roads to allow better transport between regions. A mesh system is being developed, but some areas still have to be connected.
  2. Modernize railways, extend high-speed rail lines.
  3. Create a more efficient and safer road network with new high-capacity roads such as motorways and dual carriageways.
  4. Facilitate connections with neighboring countries.