Services development and comparative advantage in manufacturing

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 State...

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Bibliographic Details
Published inJournal of development economics Vol. 144; p. 102438
Main Authors Liu, Xuepeng, Mattoo, Aaditya, Wang, Zhi, Wei, Shang-Jin
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.05.2020
Subjects
Comparative advantage
Services
Trade
Value-added
Services
Trade
Value-added
F1
Comparative advantage
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Summary: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. •We study the effects of services development on manufacturing export performance.•We improve the measures of export performance (RCA) & services input intensity (SII).•We show that services development lowers RCA in manufacturing sectors with low SII.•We show that services development raises RCA in manufacturing sectors with high SII.•Countries can bypass inefficient domestic services by importing services inputs.
ISSN:0304-3878
1872-6089
DOI:10.1016/j.jdeveco.2019.102438