Services Development and Comparative Advantage in Manufacturing

50 Pages Posted: 9 Dec 2019

See all articles by Xuepeng Liu

Xuepeng Liu

Kennesaw State University - Department of Economics and Finance

Aaditya Mattoo

World Bank - Development Research Group (DECRG)

Zhi Wang

George Mason University - Schar School of Policy and Government; Research Center of Global Value Chains

Shang-Jin Wei

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); International Monetary Fund (IMF); Tsinghua University - School of Economics & Management

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Date Written: December 2019

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.

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Suggested Citation

Liu, Xuepeng and Mattoo, Aaditya and Wang, Zhi and Wei, Shang-Jin, Services Development and Comparative Advantage in Manufacturing (December 2019). NBER Working Paper No. w26542, Available at SSRN: https://ssrn.com/abstract=3500660

Xuepeng Liu (Contact Author)

Kennesaw State University - Department of Economics and Finance ( email )

United States

HOME PAGE: http://ksuweb.kennesaw.edu/~xliu6/

Aaditya Mattoo

World Bank - Development Research Group (DECRG) ( email )

1818 H Street, N.W.
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Washington, DC 20433
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HOME PAGE: http://econ.worldbank.org/staff/amattoo

Zhi Wang

George Mason University - Schar School of Policy and Government ( email )

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Arlington, CA 22201
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3015270534 (Phone)

Research Center of Global Value Chains ( email )

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Beijing, Beijing 100029
China
011861064493795 (Phone)

HOME PAGE: http://rigvc.uibe.edu.cn/

Shang-Jin Wei

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

International Monetary Fund (IMF)

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Washington, DC 20431
United States

Tsinghua University - School of Economics & Management

Beijing, 100084
China

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