The service sector is one of the three main industrial categories of a developed economy, the others being manufacturing and agriculture. The service sector consists of the "soft" parts of the economy such as insurance, tourism, banking, retail and education.
The term service economy, by contrast, refers to a model wherein everything is treated as a service and there is no such thing as a product or commodity - manufacture and agriculture treated themselves as service sectors.
Economies tend to follow a developmental progression that takes them from a heavy reliance on agriculture, toward the development of industry (e.g. automobiles, textiles, shipbuilding, steel, mining) and finally toward a more service based structure. Whereas the first economy to follow this path in the modern world was the United Kingdom, the speed at which other economies have later made the transition to service-based, sometimes called post-industrial, has accelerated over time.
Manufacturing tends to be more open to international trade than services. As a result, there has been a tendency for the first economies to industrialize to come under competitive attack by those seeking to industrialize later, e.g. because production, especially labour, costs are lower in those industrializing later. The resultant shrinkage of manufacturing in the leading economies might explain their growing reliance on the service sector.