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Services Development and Comparative Advantage in Manufacturing

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  • Xuepeng Liu
  • Aaditya Mattoo
  • Zhi Wang
  • Shang-Jin Wei

Abstract

Most manufacturing activities use inputs from the financial and business services sectors. But these services sectors also compete for resources with manufacturing activities, provoking concerns about deindustrialization attributable to financial services in developed countries like the United States and United Kingdom, and business services in developing countries like India and the Philippines. This paper examines the implications of services development for the export performance of manufacturing sectors. We develop a methodology to quantify the indirect role of services in international trade in goods and construct new measures of revealed comparative advantage based on value-added exports. We show that the development of financial and business services enhances the revealed comparative advantage of manufacturing sectors that use these services intensively but not of other manufacturing sectors. We also find that a country can partially overcome the handicap of an underdeveloped domestic services sector by relying more on imported services inputs. Thus, lower services trade barriers in developing countries can help to promote their manufacturing exports.

Suggested Citation

  • Xuepeng Liu & Aaditya Mattoo & Zhi Wang & Shang-Jin Wei, 2019. "Services Development and Comparative Advantage in Manufacturing," NBER Working Papers 26542, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26542
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    2. Gnangnon, Sèna Kimm, 2022. "Effect of the Duration of the Membership in GATT/WTO on Commercial Services Exports in Developing Countries," EconStor Preprints 262167, ZBW - Leibniz Information Centre for Economics.
    3. Ewa Cieślik, 2022. "A New Era Is Beginning in Central and Eastern Europe: Information and Communication Technology Services Exceed Manufacturing in the Global Production Chain," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(4), pages 2607-2639, December.
    4. Chen, Quanrun & Gao, Yuning & Pei, Jiansuo & de Vries, Gaaitzen & Wang, Fei, 2022. "China's domestic production networks," China Economic Review, Elsevier, vol. 72(C).
    5. Bernardina Algieri & Antonio Aquino & Marianna Succurro, 2022. "Trade Specialisation and Changing Patterns of Comparative Advantages in Manufactured Goods," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 8(3), pages 607-667, November.
    6. Roy, Martin, 2019. "Elevating services: Services trade policy, WTO commitments, and their role in economic development and trade integration," WTO Staff Working Papers ERSD-2019-01, World Trade Organization (WTO), Economic Research and Statistics Division.
    7. Chen, Guo & Liu, Yishuang & Gao, Qizheng & Zhang, Jianqing, 2023. "Does regional services development enhance manufacturing firm productivity? A manufacturing servitization perspective," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 451-466.
    8. Tarlok Singh, 2022. "Economic growth and the state of poverty in India: sectoral and provincial perspectives," Economic Change and Restructuring, Springer, vol. 55(3), pages 1251-1302, August.
    9. Leticia Blázquez & Carmen Díaz-Mora & Belén González-Díaz, 2020. "The role of services content for manufacturing competitiveness: A network analysis," PLOS ONE, Public Library of Science, vol. 15(1), pages 1-22, January.
    10. Yimin Chen & Yulin Liu & Xin Fang, 2021. "The new evidence of China’s economic downturn: From structural bonus to structural imbalance," PLOS ONE, Public Library of Science, vol. 16(9), pages 1-25, September.
    11. Anderson, Kym, 2022. "Trade-related food policies in a more volatile climate and trade environment," Food Policy, Elsevier, vol. 109(C).
    12. Françoise Okah Efogo, 2020. "Does trade in services improve African participation in global value chains?," African Development Review, African Development Bank, vol. 32(4), pages 758-772, December.
    13. Kordalska, Aleksandra & Olczyk, Magdalena, 2021. "Linkages between services and manufacturing as a new channel for GVC development: Evidence from CEE countries," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 125-137.
    14. Jörg Mayer, 2021. "Development strategies for middle‐income countries in a digital world—Insights from modern trade economics," The World Economy, Wiley Blackwell, vol. 44(9), pages 2515-2546, September.
    15. Ewa Cieślik, 2020. "Cross-Sectoral Inter-Country Linkages under the Belt and Road Initiative: Chinese ICT Services Value Added Inflows to Manufacturing Exports in the New Eurasian Land Bridge Economies," Sustainability, MDPI, vol. 12(20), pages 1-20, October.
    16. Jin, Zhida & Li, Zheng & Yang, Mian, 2022. "Producer services development and manufacturing carbon intensity: Evidence from an international perspective," Energy Policy, Elsevier, vol. 170(C).

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