How Service Inputs Influence Export Dynamics? Experience of Manufacturing Firms from Developing Countries

A major section of the existing literature on export behaviour of firms does not consider services as a source of heterogeneity. However, over the last few decades the manufacturing sector has witnessed increasing use of services inputs, especially in case of exporting firms, across the development spectrum. This paper proposes a theoretical basis for this trend by adapting the existing literature to the services context. An empirical analysis involving developing country firms by using the World Bank Enterprise Survey (WBES) database confirms that exports from manufacturing firms are positively influenced by the use of services inputs, both at the intensive and extensive margins. The empirical results underline that services input use in manufacturing could be a source of heterogeneity in determining export behaviour of these firms. It is further noted that services such as transport & communication services, IT services, R&D services, legal and related services play an important role in determining the decision to enter the export market, while they do not play a significant role impacting the intensive margin. A key policy implication for developing countries is that efficiency enhancing reforms, covering the unshackling of services sector, will go a long way in promoting manufacturing competitiveness and export performance.