Is Service Orientation Benefitting Manufacturing Exports from Low-Middle Income Countries? Firm-level Empirical Evidence from WBES Data

Abstract

Servicification of manufacturing, generally understood as the increasing use of service inputs in the production process of goods, is often associated with high-income countries. Recent empirical research on servicification and its impact on manufacturing exports across low-middle income countries is, however, relatively scarce. The current article empirically tests the servicification for low-middle income countries using the World Bank Enterprise Survey (WBES) database over 2006–2021. A fixed effect model with country-sector-year fixed effects is used to study the impact of servicification on existing exporters (intensive margin), and a Logit model is estimated to determine the corresponding impact on the decision to export (extensive margin). While the positive influence of servicification on manufacturing exports is confirmed, different service categories (e.g., transport & communication, information & technology, research & development, legal, finance and related services) are found to play an essential role in determining the decision to enter the export market, while leaving a weaker impact on existing exporters. The findings suggest that increasing the use of different categories of service inputs may differently influence firm-level export behaviour. Liberalization of services, in the era of Industry 4.0, is expected to further enhance this interlinkage. These inevitable dynamics require preparations by firm-level decision-makers to benefit from the emerging opportunities.