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Part of it has to do with suspense. If Holmes were the narrator, then the audience would know the solution to the mystery too earlier. Doyle would not be able to slowly demonstrate the process of the investigation. However, Watson is an outside observer who can do that, while also giving a positive spin on Holmes. The detective could appear to be cold, calculating, without sympathy. Watson, in admiring him, helps to humanize him. If others were the narrator, then Doyle could not do many stories in the same style.
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