Outsourcing and the shift from manufacturing to services
Giuseppe Berlingieri 25 September 2014
Advanced nations are shedding manufacturing jobs and gaining service jobs – a trend that has been in place for decades. Some of the shift, however, is a reclassification effect. Corporate outsourcing of tasks like marketing means workers doing the same task as before now show up as working for a firm in the service sector. Using US data from the past 60 years, this column shows that the evolution of the input-output structure – which is mostly due to professional and business services outsourcing – accounts for 36% of the increase in services and 25% of the fall in manufacturing.
How much of the structural transformation of modern economies from manufacturing to services is a shift in organisational boundaries, in which work that was previously done within manufacturing firms is now outsourced to specialised service providers? This column looks at changes in the US economy over the past 60 years, and shows that the evolution of the input-output structure – which is mostly due to professional and business services outsourcing – accounts for 36% of the increase in services and 25% of the fall in manufacturing.
Global economy Labour markets
outsourcing, manufacturing, services, marketing, US, professional and business services
Service sector regulation and exports: Evidence from Spain
Rafael Doménech, Mónica Correa-López 10 August 2014
Exporting goods requires services. This column discusses new evidence showing that the improvement in services regulations that took place over the 1990s and 2000s in Spain substantially increased the volume of exports of manufacturing firms, especially of large corporations.
During the crisis, recommendations to improve market functioning in advanced economies have ranked consistently high in the policy portfolio of international institutions (OECD 2014, Buti and Padoan 2013). Among the guidelines, the removal of anti-competitive regulations in the provision of key services that are inputs to other stages of production may be especially relevant to firm performance.
services, regulation, service sector, liberalization
Protection of intellectual property to foster innovations in the service sector
Masayuki Morikawa 20 July 2014
Innovation is a key driver of productivity growth, but innovation in the service sector has received relatively little attention. This column shows that the total factor productivity gap between Japanese firms with and without innovations is larger in services than in manufacturing. Whereas the percentage of firms holding patents is much higher in manufacturing than in services, trade secrets are just as important in both sectors. These results suggest that the protection of trade secrets makes an important contribution to productivity growth.
Given the declining labour force due to population ageing, accelerating the productivity growth of industries – especially the service industries – is an important element of the growth strategy in Japan and most advanced countries. While there are a variety of factors affecting productivity, innovation is one of the key determinants of productivity growth. However, innovation in the service sector has not been studied well. I present findings on innovation in the service sector by focusing on the effect of intellectual property rights on innovation.
Productivity and Innovation
R&D, growth, productivity, patents, Japan, innovation, services, intellectual property, trade secrets
Trade and innovation in services
Leonardo Iacovone, Aaditya Mattoo, Andrés Zahler 15 September 2013
Service exports and innovation may be a source of dynamic growth for countries in the middle-income trap. This column presents new research showing some support for this optimistic view. That said, it’s clear that researchers need to improve their understanding of how firms in the services sector innovate and increase productivity, and whether better-tailored policies can promote trade and innovation in services.
The literature on innovation and international trade has, until recently, focused almost exclusively on the manufacturing sector. This is not surprising because the bulk of international trade has been in manufactured products and innovation has traditionally been associated with new or improved physical products. The services sector was ignored because it was seen as largely untouched by both trade and innovation.
Development Productivity and Innovation
The real exchange rate and export growth: Are services different?
Barry Eichengreen, Poonam Gupta 18 January 2013
Increasingly, services form a larger and larger share a country’s exports. Do exchange rates matter as much for services and they do for goods exports? This column argues that they do. Distinguishing between traditional services (such as trade and transport, tourism, financial services and insurance) and modern services (such as communications, computers, information services) suggests that the effect of the real exchange rate is especially large for exports of modern services.
The role of exports in economic growth and, in turn, of the real exchange rate in export promotion features prominently in literature on development and globalisation (Rodrik 2009, Haddad and Pancaro 2010). Much of this literature dates, however, from an era when ‘exports’ meant ‘exports of merchandise‘. Today, ‘exports’ increasingly means ‘exports of services’. This raises the question of whether the emphasis in the earlier literature on the importance of a competitively valued exchange rate for promoting exports carries over to this new environment.
Exchange rates International trade
exchange rates, exports, services
Spatial disparities in India: Have Mumbai and Chennai become too congested?
Klaus Desmet, Ejaz Ghani, Stephen D O'Connell, Esteban Rossi-Hansberg 13 June 2012
Will India’s rapid growth in the services sector lead to overcrowding of its cities? This column compares India’s experience to that of other countries.
In the last two decades the Indian economy has been growing at unprecedented rates, but that development has led to widening spatial disparities. While some cities such as Hyderabad have become major high-tech hubs with world-class companies and real estate developments reminiscent of Silicon Valley, many other places remain mired in poverty and stagnation.
Development Industrial organisation Productivity and Innovation
India, manufacturing, services, Mumbai, Chennai
Are China and India converging?
Ejaz Ghani 23 January 2012
Mention China and India to economists and their first thought will be rapid growth. Their second thought might be how differently the two economies are achieving this: China through manufacturing, India through services. This column asks whether that stereotype may be changing.
Both China and India have attracted global attention for rapid growth, but their growth patterns are very different (Rajan 2006, Pack 2008, Bosworth and Maertens 2010). China took the conventional route of manufacturing-led growth and is recognised as a global leader in manufactured exports. India followed the unconventional route of service-led growth and has acquired a global reputation for service exports. Are their growth patterns converging? Is China catching up in services? Is India catching up in manufacturing? Or has hysteresis kept their growth patterns different?
Development International trade
China, India, manufacturing, services
Boosting growth in high-debt times: The role of service deregulation
Federico Cingano, Guglielmo Barone 06 December 2011
Many European countries face the challenge of credibly reducing their debt-to-GDP ratios. Boosting output growth is therefore an urgent and key political and economic priority. This column argues that increasing competition in the market for key upstream service activities – in particular, energy and professional services – could have sizeable effects on growth by improving the performance of downstream manufacturing industries.
Many European countries face the challenge of credibly reducing their debt-to-GDP ratios. Boosting output growth is therefore an urgent and key political and economic priority. Given the existing constraints to demand-side measures, most observers see structural (supply-side) reforms as the main policy tool such countries have at their disposal to “grow out” of their debt problems (e.g. Ivanova et al. 2011, Fernandez-Villaverde and Rubio-Ramirez 2011, Amato et al. 2010). The specific measure they should focus on and the gains to be expected from such reforms are, however, less clear.
Productivity and Innovation
Services trade liberalisation and regulatory reform: Re-invigorating international cooperation
Bernard Hoekman, Aaditya Mattoo 24 December 2010
Trade in services is blighted by restrictive policy and is consequently one of the central issues in the Doha trade negotiations. Yet this column argues that even the best offers put forward are twice as restrictive as current policy and will generate no additional market openings. This column provides two proposals that aim to enhance the prospects of correcting this.
Trade in services has a mountain to climb. In both high-income and developing countries, the barriers to trade and restrictions on investment in the services sector are far higher than for the goods sector. In emerging markets the discrepancy is even more severe (see Figure 1 and Borchert et al. 2010). The costs of such policies are big and wide.
Doha Round, trade, services
Regulatory reform in services sectors: The missing explanation for the revival of Indian manufacturing?
Jens Matthias Arnold, Beata Javorcik, Molly Lipscomb, Aaditya Mattoo 12 October 2010
Conventional explanations for the post-1991 growth of India’s manufacturing sector focus on trade liberalisation and industrial de-licensing. This column examines 4,000 Indian firms from 1993 to 2005 and argues that a key factor for the success of Indian manufacturing may lie outside of manufacturing – in the services sector.
A vital element of India’s rapid economic growth since the early 1990s has been the impressive performance of its manufacturing industries. Output in manufacturing grew by 5.7% per year in the period 1993-2005, while exports grew at almost twice that rate (Reserve Bank of India 2008). The conventional explanations for the revival of Indian manufacturing point to policy reforms in manufacturing industries, such as tariff liberalisation and the dismantling of the “license raj” (Aghion et. al. 2005, 2008), and limited labour market reforms (Besley and Burgess 2004).
Development International trade
India, international trade, liberalisation, services