The Contribution of Services to Manufacturing Competitiveness in Brazil

Services are becoming increasingly relevant in economic policy agendas due to their growing importance in explaining the performance of enterprises, the type and form of participation of countries in global value chains, and prospects for sustained growth. New production technologies and production organization, as well as changes in consumption patterns and in the nature of manufactured goods, are bringing industry and services closer together. Empirical evidence suggests that goods and services are merging through an increasingly synergetic and symbiotic relationship to give rise to a third product that is neither a traditional industrial good nor a conventional service. This complementariness between industry and services requires both activities to be competitive for them to benefit from each other.How is the relationship between manufacturing and services in Brazil? Have services contributed to increasing industrial competitiveness? The purpose of this paper is to answer these questions from an international comparative perspective. We found that (1) The share of the service sector in GDP is disproportionately high in Brazil, reaching levels seen only in advanced economies; (2) Services account for a high and growing share of the value added in manufactured goods; (3) Services are of poor quality and prices are high by international standards; (4) Services have contributed little to enhancing industrial competitiveness; (5) The high share of services in industrial value added was led mainly by changes in relative prices; (6) The low competitiveness of services can be partly explained by the sector’s modest labor productivity, high taxation, low competition and low investment; (7) Financial services and industrial and maintenance services provided by third parties account for most industrial spending on services.It seems that integrating services into the core of industrial, technology, trade and investment policies is a key step to enhance industrial competitiveness in Brazil.