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From Selling Goods to Selling Services: Firm Responses to Trade Liberalization


  • Holger Breinlich
  • Anson Soderbery
  • Greg C. Wright


In the face of trade liberalization domestic firms are often forced out of the market, whereas others adapt and survive. In this paper we focus on a new channel of adaptation, namely the shift toward increased provision of services in lieu of goods production. We exploit variation in EU trade policy to show that lower manufacturing tariffs cause firms to shift into services provision and out of goods production. Additionally, we find that a successful transition is strongly associated with higher firm-level R&D stocks whereas higher physical capital stocks slow the shift into services provision.

Suggested Citation

  • Holger Breinlich & Anson Soderbery & Greg C. Wright, 2014. "From Selling Goods to Selling Services: Firm Responses to Trade Liberalization," CEP Discussion Papers dp1303, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1303

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    References listed on IDEAS

    1. Nicholas Bloom & Mirko Draca & John Van Reenen, 2016. "Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity," Review of Economic Studies, Oxford University Press, vol. 83(1), pages 87-117.
    2. Bloom, Nick & Griffith, Rachel & Van Reenen, John, 2002. "Do R&D tax credits work? Evidence from a panel of countries 1979-1997," Journal of Public Economics, Elsevier, vol. 85(1), pages 1-31, July.
    3. Vandermerwe, Sandra & Rada, Juan, 1988. "Servitization of business: Adding value by adding services," European Management Journal, Elsevier, vol. 6(4), pages 314-324, December.
    4. Arpita Chatterjee & Rafael Dix-Carneiro & Jade Vichyanond, 2013. "Multi-product Firms and Exchange Rate Fluctuations," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 77-110, May.
    5. Bernard, Andrew B. & Fort, Teresa C, 2013. "Factoryless Goods Producers in the US," CEPR Discussion Papers 9644, C.E.P.R. Discussion Papers.
    6. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1450-1476.
    7. Breinlich, Holger & Criscuolo, Chiara, 2011. "International trade in services: A portrait of importers and exporters," Journal of International Economics, Elsevier, vol. 84(2), pages 188-206, July.
    8. Matthieu Crozet & Emmanuel Milet, 2014. "The Servitization of French Manufacturing Firms," Working Papers 2014-10, CEPII research center.
    9. Robert C. Feenstra & John Romalis, 2014. "International Prices and Endogenous Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 129(2), pages 477-527.
    10. Runjuan Liu, 2010. "Import competition and firm refocusing," Canadian Journal of Economics, Canadian Economics Association, vol. 43(2), pages 440-466, May.
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    Cited by:

    1. repec:bla:jemstr:v:26:y:2017:i:4:p:820-841 is not listed on IDEAS
    2. Ariu, Andrea & Breinlich, Holger & Corcos, Gregory & Mion, Giordano, 2017. "The Interconnections Between Services and Goods Trade at the Firm-Level," CEPR Discussion Papers 12169, C.E.P.R. Discussion Papers.
    3. repec:bla:worlde:v:40:y:2017:i:3:p:499-516 is not listed on IDEAS
    4. Matthieu Crozet & Emmanuel Milet, 2017. "Should everybody be in services? The effect of servitization on manufacturing firm performance," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(4), pages 820-841, December.
    5. Lodefalk, Magnus, 2015. "Servification of Firms and Trade Policy Implications," Working Papers 2015:1, Örebro University, School of Business, revised 17 May 2016.
    6. Catherine Fuss & Pierre Blanchard & Claude Mathieu, 2017. "Why do manufacturing firms produce services? Evidence for the servitization paradox in Belgium," Working Paper Research 330, National Bank of Belgium.
    7. Ariu, Andrea & Breinlich, Holger & Corcos, Gregory & Mion, Giordano, 2017. "The interconnections between services and goods trade at the firm-Level," LSE Research Online Documents on Economics 86602, London School of Economics and Political Science, LSE Library.
    8. Bernard Hoekman & Ben Shepherd, 2017. "Services Productivity, Trade Policy and Manufacturing Exports," The World Economy, Wiley Blackwell, vol. 40(3), pages 499-516, March.
    9. Andrea Ariu & Florian Mayneris & Mathieu Parenti, 2016. "Providing Services to Boost Goods Exports: Theory and Evidence," Working Papers ECARES ECARES 2016-43, ULB -- Universite Libre de Bruxelles.

    More about this item


    Services trade; trade liberalization;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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