It is observed that since 1990s service sector has emerged as the fastest growing sector in most of the economies, be it developed or developing. The growing share of services in global output, employment and international transactions has brought to the forefront the issue of the role played by services in the growth process of developing
countries. In this context, the paper undertakes a selective review of literature that discusses the growth of service sector in developing countries. The relationship between manufacturing and service sector is also explored along with the reasons for slower productivity growth in services as compared to goods. The problems in measurement of productivity in services are discussed along with the issue of productivity paradox.