Working Paper: CEPR ID: DP10116
Authors: Holger Breinlich; Anson Soderbery; Greg C. Wright
Abstract: In the face of trade liberalization domestic firms are often forced out of the market, whereas others adapt and survive. In this paper we focus on a new channel of adaptation, namely the shift toward increased provision of services in lieu of goods production. We exploit variation in EU trade policy to show that lower manufacturing tariffs cause firms to shift into services provision and out of goods production. Additionally, we find that a successful transition is strongly associated with higher firm-level R&D stocks whereas higher physical capital stocks slow the shift into services provision.
Keywords: services; trade; trade liberalization
JEL Codes: F12; F15; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm's stock of R&D (D25) | successful transition to service provision (L33) |
| higher physical capital stock (E22) | weaker shift into services (L89) |
| lower manufacturing tariffs (L69) | shift in firms' production strategies from goods to services (O14) |
| lower manufacturing tariffs (L69) | services-to-goods revenue ratio (L84) |