Publication:
Services Development and Comparative Advantage in Manufacturing

Loading...
Thumbnail Image
Files in English
English PDF (1000.72 KB)
918 downloads
English Text (158.69 KB)
103 downloads
Date
2018-05
ISSN
Published
2018-05
Author(s)
Liu, Xuepeng
Wang, Zhi
Wei, Shang-Jin
Editor(s)
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 de-industrialization -- financial services in industrial countries like the United States and the 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. It develops a methodology to quantify the indirect role of services in international trade in goods and constructs new measures of revealed comparative advantage based on domestic value added in gross exports. The paper shows that the development of financial and business services enhances the revealed comparative advantage of manufacturing sectors that use these services intensively but not that of other manufacturing sectors. It also finds 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.
Link to Data Set
Citation
Liu, Xuepeng; Wang, Zhi; Wei, Shang-Jin; Mattoo, Aaditya. 2018. Services Development and Comparative Advantage in Manufacturing. Policy Research Working Paper;No. 8450. © World Bank. http://hdl.handle.net/10986/29860 License: CC BY 3.0 IGO.
Associated URLs
Associated content
Report Series
Report Series
Other publications in this report series
  • Publication
    Intergenerational Income Mobility around the World
    (Washington, DC: World Bank, 2025-07-09) Munoz, Ercio; Van der Weide, Roy
    This paper introduces a new global database with estimates of intergenerational income mobility for 87 countries, covering 84 percent of the world’s population. This marks a notable expansion of the cross-country evidence base on income mobility, particularly among low- and middle-income countries. The estimates indicate that the negative association between income mobility and inequality (known as the Great Gatsby Curve) continues to hold across this wider range of countries. The database also reveals a positive association between income mobility and national income per capita, suggesting that countries achieve higher levels of intergenerational mobility as they grow richer.
  • Publication
    The Future of Poverty
    (Washington, DC: World Bank, 2025-07-15) Fajardo-Gonzalez, Johanna; Nguyen, Minh C.; Corral, Paul
    Climate change is increasingly acknowledged as a critical issue with far-reaching socioeconomic implications that extend well beyond environmental concerns. Among the most pressing challenges is its impact on global poverty. This paper projects the potential impacts of unmitigated climate change on global poverty rates between 2023 and 2050. Building on a study that provided a detailed analysis of how temperature changes affect economic productivity, this paper integrates those findings with binned data from 217 countries, sourced from the World Bank’s Poverty and Inequality Platform. By simulating poverty rates and the number of poor under two climate change scenarios, the paper uncovers some alarming trends. One of the primary findings is that the number of people living in extreme poverty worldwide could be nearly doubled due to climate change. In all scenarios, Sub-Saharan Africa is projected to bear the brunt, contributing the largest number of poor people, with estimates ranging between 40.5 million and 73.5 million by 2050. Another significant finding is the disproportionate impact of inequality on poverty. Even small increases in inequality can lead to substantial rises in poverty levels. For instance, if every country’s Gini coefficient increases by just 1 percent between 2022 and 2050, an additional 8.8 million people could be pushed below the international poverty line by 2050. In a more extreme scenario, where every country’s Gini coefficient increases by 10 percent between 2022 and 2050, the number of people falling into poverty could rise by an additional 148.8 million relative to the baseline scenario. These findings underscore the urgent need for comprehensive climate policies that not only mitigate environmental impacts but also address socioeconomic vulnerabilities.
  • Publication
    Engineering Ukraine’s Wirtschaftswunder
    (Washington, DC: World Bank, 2025-07-29) Akcigit, Ufuk; Kilic, Furkan; Lall, Somik; Shpak, Solomiya
    As Ukraine emerges from the devastation of war, it faces a historic opportunity to engineer its own Wirtschaftswunder—a productivity-driven economic transformation akin to post-war West Germany. While investment-led growth may offer quick wins, it is efficiency, innovation, and institutional reform that will determine Ukraine’s long-term economic trajectory. Drawing on rich micro-level firm data spanning 25 years, this paper uncovers deep structural distortions that have suppressed creative destruction and productivity in Ukraine. It finds that business dynamism is on the decline, alongside rising market concentration among incumbent businesses, including low productivity state owned enterprises. To inform priorities for reviving business dynamism, this study develops a model of creative destruction drawing on Acemoglu et al. (2018) and Akcigit et al. (2021). The quantitative assessment highlights that policies that discipline entrenched incumbents are the bedrock for reviving business dynamism and engineer Ukraine’s Wirtschaftswunder. Policies targeting specific types of firms have limited efficacy when incumbents run wild.
  • Publication
    The Macroeconomic Implications of Climate Change Impacts and Adaptation Options
    (Washington, DC: World Bank, 2025-05-29) Abalo, Kodzovi; Boehlert, Brent; Bui, Thanh; Burns, Andrew; Castillo, Diego; Chewpreecha, Unnada; Haider, Alexander; Hallegatte, Stephane; Jooste, Charl; McIsaac, Florent; Ruberl, Heather; Smet, Kim; Strzepek, Ken
    Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.
  • Publication
    Disentangling the Key Economic Channels through Which Infrastructure Affects Jobs
    (Washington, DC: World Bank, 2025-04-03) Vagliasindi, Maria; Gorgulu, Nisan
    This paper takes stock of the literature on infrastructure and jobs published since the early 2000s, using a conceptual framework to identify the key channels through which different types of infrastructure impact jobs. Where relevant, it highlights the different approaches and findings in the cases of energy, digital, and transport infrastructure. Overall, the literature review provides strong evidence of infrastructure’s positive impact on employment, particularly for women. In the case of electricity, this impact arises from freeing time that would otherwise be spent on household tasks. Similarly, digital infrastructure, particularly mobile phone coverage, has demonstrated positive labor market effects, often driven by private sector investments rather than large public expenditures, which are typically required for other large-scale infrastructure projects. The evidence on structural transformation is also positive, with some notable exceptions, such as studies that find no significant impact on structural transformation in rural India in the cases of electricity and roads. Even with better market connections, remote areas may continue to lack economic opportunities, due to the absence of agglomeration economies and complementary inputs such as human capital. Accordingly, reducing transport costs alone may not be sufficient to drive economic transformation in rural areas. The spatial dimension of transformation is particularly relevant for transport, both internationally—by enhancing trade integration—and within countries, where economic development tends to drive firms and jobs toward urban centers, benefitting from economies scale and network effects. Turning to organizational transformation, evidence on skill bias in developing countries is more mixed than in developed countries and may vary considerably by context. Further research, especially on the possible reasons explaining the differences between developed and developing economies, is needed.
Journal
Journal Volume
Journal Issue

Related items

Showing items related by metadata.

  • Publication
    Services Trade and Growth
    (World Bank, Washington, DC, 2008-01) Mattoo, Aaditya; Hoekman, Bernard
    The competitiveness of firms in open economies is increasingly determined by access to low-cost and high-quality producer services - telecommunications, transport and distribution services, financial intermediation, etc. This paper discusses the role of services in economic growth, focusing in particular on channels through which openness to trade in services may increase productivity at the level of the economy as a whole, industries and the firm. The authors explore what recent empirical work suggests could be done to enhance comparative advantage in the production and export of services and how to design policy reforms to open services markets to greater foreign participation in a way that ensures not just greater efficiency but also greater equity in terms of access to services.
  • Publication
    Services Reform and Manufacturing Performance : Evidence from India
    (2012-01-01) Arnold, Jens Matthias; Javorcik, Beata; Lipscomb, Molly; Mattoo, Aaditya
    The growth of India's manufacturing sector since 1991 has been attributed mostly to trade liberalization and more permissive industrial licensing. This paper demonstrates the significant impact of a neglected factor: India's policy reforms in services. The authors examine the link between those reforms and the productivity of manufacturing firms using panel data for about 4,000 Indian firms fro
  • Publication
    Services Trade Liberalization and Regulatory Reform : Re-invigorating International Cooperation
    (2011-01-01) Hoekman, Bernard; Mattoo, Aaditya
    Trade and investment in services are inhibited by a range of policy restrictions, but the best offers so far in the Doha negotiations are on average twice as restrictive as actual policy. They will generate no additional market opening. Regulatory concerns help explain the limited progress. This paper develops two proposals to enhance the prospects for both liberalization of services trade and regulatory reform. The first is for governments to create mechanisms ("services knowledge platforms") to bring together regulators, trade officials, and stakeholders to discuss services regulatory reform. Such mechanisms could identify reform priorities and opportunities for utilization of "aid for trade" resources, thereby putting in place the preconditions for future market opening. The second proposal is for a new approach to negotiations in the World Trade Organization, with a critical mass of countries that account for the bulk of services production agreeing to lock-in applied levels of protection and pre-committing to reform of policies affecting foreign direct investment and international movement for individual service providers -- two areas where current policy is most restrictive and potential benefits from liberalization are greatest. If these proposals cannot be fully implemented in the Doha time frame, then any Doha agreement could at least lay the basis for a forward-looking program of international cooperation along the proposed lines.
  • Publication
    Trade in Value Added : Developing New Measures of Cross-Border Trade
    (London: Centre for Economic Policy Research and the World Bank, 2013) Wang, Zhi; Wei, Shang-Jin; Mattoo, Aaditya
    This volume includes papers that were first presented and discussed at a workshop on 'The Fragmentation of Global Production and Trade in Value- Added: Developing New Measures of Cross Border Trade', held at the World Bank in Washington, DC, on 9 to 10 June, 2011. This publication is structured as follows: chapter one gives and overview of measuring trade in value added when production is fragmented across countries. Chapter two discusses policy rationale and methodological challenges towards the measurement of trade in value-added terms. Chapter three highlights the importance of measuring trade in value added. Chapter four computes and analyses the value-added content of trade. Chapter five proposes an accounting framework for estimating the domestic and foreign content share in a country's exports when processing trade is prevalent. Chapter six provides estimates of foreign and domestic content in Mexico's manufacturing exports that take into account the import content in production under the maquiladora and Programa de Importacion Temporal para Producir Articulos de Exportacion (PITEX) programmes. Chapter seven gives empirical evidence that the standard gravity equation performs poorly by some measures when it is applied to bilateral flows where parts and components trade is important. It also provides a simple theoretical foundation for a modified gravity equation that is suited to explain trade where international supply chains are important. Chapter eight provides methodological guidelines on how to compute import coefficients at the level of the firm and shows how trade micro-data, can refine the aggregate nature of the indicators in input-output (IO) tables, by increasing their granularity. Chapter nine reviews the availability of underlying source data, summarizes the assumptions and describes the harmonization techniques used. Chapter ten gives three-stage reconciliation method to construct a time series international IO database. Chapter eleven gives direct measurement for collecting product- and firm-level statistics on value added and business function outsourcing and offshoring. Chapter twelve focuses on statistics and measures that are developed and used for defining and monitoring trade policy and economic development. Each chapter gives references at the end.
  • Publication
    The Effects of Financial Development on Foreign Direct Investment
    (World Bank Group, Washington, DC, 2014-10) Desbordes, Rodolphe; Wei, Shang-Jin
    This paper examines how financial development influences foreign direct investment. The direct and indirect sector-specific effects that source countries' financial development and destination countries' financial development can have on foreign direct investment are first identified in a conceptual framework. The presence and relative strength of these various channels of influence at the different margins of foreign direct investment are then empirically investigated using unique and underexploited sector-specific bilateral panel data on greenfield foreign direct investment over the period 2003-2006. Causality is established by applying a difference-in-differences approach that exploits the variation in financial vulnerability across manufacturing sectors. The overall effects of higher source countries' financial development and destination countries' financial development on the relative volume of bilateral foreign direct investment in financially vulnerable sectors are large, positive, and complementary. These effects appear to operate mainly at the intensive margin rather than at the extensive margin of foreign direct investment. There is also evidence of direct and indirect effects of financial development. The key findings are robust to the use of data on the number of bilateral Mergers\&Acquisitions transactions. Overall, the empirical results unambiguously indicate that a sophisticated and well-functioning financial system in source and destination countries greatly facilitates the international expansion of firms through foreign direct investment, especially in financially vulnerable sectors.

Users also downloaded

Showing related downloaded files

  • Publication
    Classroom Assessment to Support Foundational Literacy
    (Washington, DC: World Bank, 2025-03-21) Luna-Bazaldua, Diego; Levin, Victoria; Liberman, Julia; Gala, Priyal Mukesh
    This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.
  • Publication
    Business Ready 2024
    (Washington, DC: World Bank, 2024-10-03) World Bank
    Business Ready (B-READY) is a new World Bank Group corporate flagship report that evaluates the business and investment climate worldwide. It replaces and improves upon the Doing Business project. B-READY provides a comprehensive data set and description of the factors that strengthen the private sector, not only by advancing the interests of individual firms but also by elevating the interests of workers, consumers, potential new enterprises, and the natural environment. This 2024 report introduces a new analytical framework that benchmarks economies based on three pillars: Regulatory Framework, Public Services, and Operational Efficiency. The analysis centers on 10 topics essential for private sector development that correspond to various stages of the life cycle of a firm. The report also offers insights into three cross-cutting themes that are relevant for modern economies: digital adoption, environmental sustainability, and gender. B-READY draws on a robust data collection process that includes specially tailored expert questionnaires and firm-level surveys. The 2024 report, which covers 50 economies, serves as the first in a series that will expand in geographical coverage and refine its methodology over time, supporting reform advocacy, policy guidance, and further analysis and research.
  • Publication
    Argentina Country Climate and Development Report
    (World Bank, Washington, DC, 2022-11) World Bank Group
    The Argentina Country Climate and Development Report (CCDR) explores opportunities and identifies trade-offs for aligning Argentina’s growth and poverty reduction policies with its commitments on, and its ability to withstand, climate change. It assesses how the country can: reduce its vulnerability to climate shocks through targeted public and private investments and adequation of social protection. The report also shows how Argentina can seize the benefits of a global decarbonization path to sustain a more robust economic growth through further development of Argentina’s potential for renewable energy, energy efficiency actions, the lithium value chain, as well as climate-smart agriculture (and land use) options. Given Argentina’s context, this CCDR focuses on win-win policies and investments, which have large co-benefits or can contribute to raising the country’s growth while helping to adapt the economy, also considering how human capital actions can accompany a just transition.
  • Publication
    World Development Report 2006
    (Washington, DC, 2005) World Bank
    This year’s Word Development Report (WDR), the twenty-eighth, looks at the role of equity in the development process. It defines equity in terms of two basic principles. The first is equal opportunities: that a person’s chances in life should be determined by his or her talents and efforts, rather than by pre-determined circumstances such as race, gender, social or family background. The second principle is the avoidance of extreme deprivation in outcomes, particularly in health, education and consumption levels. This principle thus includes the objective of poverty reduction. The report’s main message is that, in the long run, the pursuit of equity and the pursuit of economic prosperity are complementary. In addition to detailed chapters exploring these and related issues, the Report contains selected data from the World Development Indicators 2005‹an appendix of economic and social data for over 200 countries. This Report offers practical insights for policymakers, executives, scholars, and all those with an interest in economic development.
  • Publication
    MIGA Annual Report 2021
    (Washington, DC: Multilateral Investment Guarantee Agency, 2021-10-01) Multilateral Investment Guarantee Agency
    In FY21, MIGA issued 5.2 billion US Dollars in new guarantees across 40 projects. These projects are expected to provide 784,000 people with new or improved electricity service, create over 14,000 jobs, generate over 362 million US Dollars in taxes for the host countries, and enable about 1.3 billion US Dollars in loans to businesses—critical as countries around the world work to keep their economies afloat. Of the 40 projects supported during FY21, 85 percent addressed at least one of the strategic priority areas, namely, IDA-eligible countries (lower-income), fragile and conflict affected situations (FCS), and climate finance. As of June 2021, MIGA has also issued 5.6 billion US Dollars of guarantees through our COVID-19 Response Program and anticipate an expansion to 10–12 billion US Dollars over the coming years, a testament to the countercyclical role that MIGA can play in mobilizing private investment in the face of the pandemic. A member of the World Bank Group, MIGA is committed to strong development impact and promoting projects that are economically, environmentally, and socially sustainable. MIGA helps investors mitigate the risks of restrictions on currency conversion and transfer, breach of contract by governments, expropriation, and war and civil disturbance, as well as offering credit enhancement on sovereign obligations.