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Analysing the Contribution of Business Services to European Economic Growth

Author

Listed:
  • Henk Kox

    (Centraal Planbureau (CPB), Government of the Netherlands)

  • Luis Rubalcaba

    (Departamento de Economía Aplicada, Facultad de Ciencias Económicas, Empresariales y Turismo, Universidad de Alcalá de Henares)

Abstract

The sector business services contributes directly and indirectly to aggregate economic growth in Europe. The direct contribution comes from the sector’s own dynamism. Though the business-services industry appears to be characterised by strong cyclical volatility, there was also a strong structural growth. Business services actually generated more than half of total net employment growth in the European Union since the second half of the 1990s. Apart from this direct growth contribution, the sector also contributed in an indirect way to economic growth by generating knowledge and productivity spill-overs for other industries. The knowledge role of business services is reflected in its employment characteristics. The business-services industry created spill-overs in three ways: original innovations, knowledge diffusion, and the reduction of human capital indivisibilities at firm level. The share of knowledge-intensive business services in the intermediate inputs of the total economy has risen sharply in the last decade. Firm-level scale diseconomies with regard to knowledge and skill inputs are reduced by external deliveries of such inputs, thereby exploiting positive external scale economies. The process goes along with an increasingly complex social division of labour between economic sectors. The European business-services industry itself is characterised by a relatively weak productivity growth. Does this contribute to growth stagnation tendencies à la the so-called “Baumol disease”? The paper argues that there is no reason to expect this as long as the productivity and growth spill-overs from business services to other sectors are large enough. Finally, the paper concludes by suggesting several policy elements that could boost the role of business services in European economic growth. This might to achieve some of the ambitious Lisbon goals with respect to employment, productivity and innovation.

Suggested Citation

  • Henk Kox & Luis Rubalcaba, 2007. "Analysing the Contribution of Business Services to European Economic Growth," Bruges European Economic Research Papers 9, European Economic Studies Department, College of Europe.
  • Handle: RePEc:coe:wpbeer:9
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    References listed on IDEAS

    as
    1. Jacques De Bandt, 1999. "The Concept of Labour and Competence Requirements in a Service Economy," The Service Industries Journal, Taylor & Francis Journals, vol. 19(1), pages 1-17, January.
    2. Antonelli, Cristiano, 2001. "The Microeconomics of Technological Systems," OUP Catalogue, Oxford University Press, number 9780199245536.
    3. Baumol, William J, 1972. "Macroeconomics of Unbalanced Growth: Reply," American Economic Review, American Economic Association, vol. 62(1), pages 150-150, March.
    4. Curtis Eaton, B. & Lipsey, Richard G., 1989. "Product differentiation," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 12, pages 723-768 Elsevier.
    5. Burda, Michael C & Dluhosch, Barbara, 2002. "Cost Competition, Fragmentation, and Globalization," Review of International Economics, Wiley Blackwell, vol. 10(3), pages 424-441, August.
    6. Kox, Henk L.M. & Rubalcaba, Luis, 2007. "Analysing the contribution of business services to European economic growth," MPRA Paper 2003, University Library of Munich, Germany.
    7. Neil M. Coe, 2000. "The Externalisation of Producer Services Debate: The UK Computer Services Sector," The Service Industries Journal, Taylor & Francis Journals, vol. 20(2), pages 64-81, April.
    8. Arnold, Jens & Javorcik, Beata & Mattoo, Aaditya, 2006. "Does Services Liberalization Benefit Manufacturing Firms?," CEPR Discussion Papers 5902, C.E.P.R. Discussion Papers.
    9. Luis Rubalcaba, 2007. "Services in European Policies," Bruges European Economic Policy Briefings 16, European Economic Studies Department, College of Europe.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    business services; structural change; growth; Europe; services;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L8 - Industrial Organization - - Industry Studies: Services
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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