Servicification and manufacturing exports: Evidence from India

This paper studies whether services inputs can promote exports of manufacturing firms in India, given that the country is recognized for its services sector. There is growing evidence of servicification of manufacturing firms since services are useful in overcoming informal barriers and facilitating trade. Using data for science-based manufacturing firms over the period 2001–2016, we study the impact of servicification on export intensity, using a fractional probit model. The results indicate that by raising the share of services as inputs, the export intensity of firms rises after controlling for firm covariates such as size, exporter status and MNE status. The results hold true even after endogenizing TFP. The study finds new firm-level evidence on the key role played by services in manufacturing exports and provides recommendations for framing policies conjointly for the manufacturing and services sectors.