Working Paper: NBER ID: w26542
Authors: Xuepeng Liu; Aaditya Mattoo; Zhi Wang; Shangjin 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.
Keywords: services development; comparative advantage; manufacturing exports; financial services; business services
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Development of financial and business services (G20) | RCA of manufacturing sectors that utilize these services intensively (L69) |
| High services input intensity (L89) | Positive effects of services development on RCA (O14) |
| Low services input intensity (L89) | Reduction in RCA (L42) |
| Domestic services development (O29) | Mixed effect on RCA (C22) |
| Reliance on imported services inputs (F14) | Improved manufacturing export performance (F14) |