Servicification in global value chains toward post-COVID-19 era in emerging and developing Asian economies

Servicification in global value chains (GVCs) in emerging and developing Asian economies has become a trend recently. However, there have been no scientific studies to elucidate the mechanism of servicification in GVCs. To fill this missing gap, this study aims at investigating the involvement of service sectors into GVCs in Asian economies in terms of the quantitative interactions between service inputs and manufacturing exports and inputs and between service inputs and service exports. For this purpose, a panel vector -autoregressive model and the Trade in Value Added (TiVA 2023) database of the Organization for Economic Cooperation and Development (OECD) are used for the empirical analysis during 1995-2020. The estimation results find that, first, there exist reciprocal interactions between the business services and manufacturing sectors; foreign business service inputs are induced by manufacturing exports, whereas manufacturing inputs are induced by business service exports. Second, foreign manufacturing inputs facilitate foreign business service inputs. Third, business service inputs are promoted by business service exports. These trends in the involvement of business services’ involvement in GVCs have accelerated from the mid-2000s and are expected to expand toward the post-COVID-19 era. To enhance role of services in GVCs, Asian economies should facilitate the removal of explicit restrictions in service trade and address regulatory divergence across countries.