Abstract. The present paper considers endogenous growth model with commodity sector and service sector. It is shown that there exists a unique steady state growth rate of human capital accumulation which works as the source of growth for all other sectors of the economy. This growth rate rises with the output elasticity of skilled labour in both sectors and that of physical capital in commodity sector. It is found from the comparative static analysis that increases in preference towards service good will raise growth rate only if service sector is more intensively dependent on human capital than commodity sector. It is also found that as the productivity of human capital accumulation technology increases, employment of raw labour in commodity sector increases and hence service sector becomes more skill intensive.

Keywords: Service sector, Human Capital, Endogenous Growth.