Lodefalk, Μ. (2015) “Tear down the trade-policy silos! Or how the servicification of manufacturing makes divides in trade policymaking irrelevant“, VoxEU Organisation, 16 January.
The manufacturing sector in OECD countries increasingly buys, produces, sells and exports services. This is now known as the servicification of manufacturing. This column, using firm-level data from Sweden, shows that as firms’ share of in-house services increases, so does their export intensity. The increasing complementarities between services and trade in goods thus imply that the different trade policies for goods and services are an antiquated divide.
The state of manufacturing in OECD countries and its offshoring to emerging economies have been concerns for a least a decade but nowadays the industry has been considered the comeback kid. Policymakers in OECD countries seem to hope for a renewal of manufacturing that will strengthen their industrial base (e.g., European Commission, 2014). As an example, the new prime minister of Sweden, Stefan Löfven, has set out to reindustrialise the country and make it the world leader in manufacturing, this as part of the strategy to make the unemployment rate the lowest one in the EU by 2020 (Schück, 2014). A trend related to these aspirations is the servicification – the increase of purchases, production, sale and export of services – of manufacturing. This column briefly summarises the micro-level evidence, continues with trade effects, and ends with implications for trade policy.1
Servicification of manufacturing
Servicification is arguably a game-changer for manufacturing. The trend is evident across OECD countries and manufacturing industries (Pilat 2005, Pilat et al. 2008). For example, in Lodefalk (2013) I used input-output data for Sweden and found that the share of services in total inputs has doubled in the 1975-2005 period. Using micro-level data that considers the reorganisation of manufacturing firms into enterprise groups and industrial reclassification of activities, I find that manufacturing has not declined as much as previously considered. More importantly, manufacturing increasingly buys, produces, sells and exports services. Today, manufacturing industries account for major shares of exports of services. In Sweden, the telecom industry is the second largest exporter of services after the transport industry (Growth Analysis, 2010). Subsequent studies find similar patterns of servicification for Germany and France (Boddin and Henze 2014, Crozet and Milet 2014, Kelle 2013, Kelle and Kleinert 2010). If the value-added of the services industry to manufacturing is considered, services accounts for approximately 50% of gross exports of the EU and of the US (OECD, 2014).
Relevant posts:
- Canton, E., Ciriaci, D. & Solera, I. (2014) “The Economic Impact of Professional Services Liberalisation“, European Economy. Economic Papers. 533. September 2014
- Fernández Corugedo. Ε. & Pérez Ruiz, Ε. (2014) “The EU Services Directive: Gains from Further Liberalization“, IMF Working Paper No. 14/113, 01 July.
- Policy Network (2013) “Britain’s Financial Services Industry in a Changing Europe“, A Policy Network Report for the City of London Corporation, 22 November.