How much services value-added is embedded in goods exports, and who are the services-intensive manufacturers?

Miroudot, Lanz & Ragoussis (2009, OECD Trade Policy Paper 93), and later Baldwin, Forslid & Ito (2015, Unbundling the Unbundling, IFN WP 1039), argued that modern manufacturing is indistinguishable from services at the value-added layer: when a German car is shipped, something like a third of the price is design, software, logistics and finance rather than metal-bending. Using the OECD Trade in Value Added (TiVA) 2023 release (2005-2020), we size that services content by country and ask whether services-intensive exporters also sit higher on the Economic Complexity Index (Hausmann-Hidalgo).

The services content of a country’s exports

For each of the 20 largest gross exporters in 2020, we sum the domestic services value-added share (EXGR_SERV_DVA, percent of gross exports, MAINSH dataset) and the foreign services value-added share (EXGR_SERV_FVA). The sum is the share of every export dollar that was paid, somewhere along the chain, to a services industry: wholesale and transport margins, legal and engineering fees, financial intermediation, software and telecoms. Cadestin, Gourdon & Kowalski (2016, OECDTrade Policy Paper 192) call this the “total services share of gross exports” and treat it as the canonical servicification measure.

Servicification trend, five major exporters, 2005-2020

Baldwin, Forslid & Ito (2015) show that the services share of manufactured output trended upward across advanced economies from the 1990s into the 2010s, driven by the third unbundling (business-services trade on the back of broadband). Tracking the same measure over the full TiVA coverage 2005-2020, five large but structurally different exporters illustrate the heterogeneity: a services-heavy incumbent (USA), a precision manufacturer (DEU), the largest manufacturing scale-up of the period (CHN), an export-led electronics economy (KOR), and a services-exporting emerging economy (IND).

Domestic vs foreign origin of the embedded services VA

The OECD TiVA 2023 MAINSH release publishes the services VA share only at the total-industry aggregate. Subcategory breakdowns (business services, finance, transport, R&D, telecoms) are published as auxiliary origin-industry tables that are not part of this workbench build. The closest decomposition we can run is the domestic vs foreign split: EXGR_SERV_DVA is services VA embedded at home, EXGR_SERV_FVA is imported services VA routed through intermediate goods. Cadestin-Gourdon-Kowalski (2016) show that most of the servicification action sits on the domestic leg for advanced economies, with the foreign leg contributing 2-6 percentage points of export value; countries deep inside global value chains (Ireland, Hungary, Czechia) sit at the top of the foreign-services leg.

Does services-intensity correlate with economic complexity?

Hausmann & Hidalgo (2009, PNAS 106(26): 10570-10575) construct ECI from the diversity and ubiquity of a country’s export basket at HS6. If servicification is endogenous to the sophistication of production — services are what binds a complex task structure together — we should see a positive association between ECI and services share. Bubble size scales with gross exports.

Import-dependence of the services embedded in manufacturing exports

The last diagnostic reframes the domestic-vs-foreign split in Figure 3 as an import-dependence ratio: foreign services VA divided by total services VA embedded in gross exports (EXGR_SERV_FVA / (EXGR_SERV_DVA + EXGR_SERV_FVA)). This is the services-side analogue of the import content of exports that Koopman, Wang & Wei (2014, American Economic Review) and Johnson & Noguera (2012, JIE) use to benchmark GVC depth. Small open economies and central-European assemblers sit at the top: a quarter to a third of the services routed through their goods exports is bought abroad. Large continental economies and services exporters sit lower: the services that bind their manufacturing exports together are domestically produced.

Services inputs per dollar of intermediate-goods production

Figures 1 and 2 give the services share of all gross exports; the more policy-relevant margin for GVCs is the services share per dollar of intermediate-goods production, because that is the leg on which regulatory services barriers bite during fragmentation. We construct the ratio of total services VA share (EXGR_SERV_DVA + EXGR_SERV_FVA) to intermediate-goods domestic VA share (EXGR_INT_DVA) over 2005-2020. The level is dimensionless: services VA dollars per intermediate-goods domestic VA dollar, expressed as a percentage. This is the construct Baldwin, Forslid and Ito (2015, IFN WP 1039) point to when they describe modern manufacturing as services in disguise.

Foreign-services dependence over time

Figure 5 shows the cross-section of foreign-services VA dependence in 2020. Figure 7 is the time-path: EXGR_SERV_FVA / (EXGR_SERV_DVA + EXGR_SERV_FVA) from 2005 to 2020 for the five peer countries. Cadestin, Gourdon and Kowalski (2016, OECD Trade Policy Paper 192) and Miroudot, Lanz and Ragoussis (2009, OECD Trade Policy Paper 93) treat the imported-services share as the most responsive servicification margin to GVC depth: it climbs through the second-unbundling expansion and partially unwinds when fragmentation reverses. The peer set runs the gamut from continental services-heavy (USA), precision-manufacturing GVC anchor (DEU), the largest manufacturing scale-up of the period (CHN), an export-led electronics economy (KOR), and a services-exporting emerging economy (IND).

What this means for trade policy and firm strategy

• Services trade policy is goods trade policy. Roughly a third to half of the value of a typical country’s goods exports is services VA. Restrictions on services trade (OECD STRI) and domestic regulation of services raise the cost of goods exports through the same channel as tariffs on intermediate inputs. Nordas and Rouzet (2017, World Economy 40(6): 1155-1183; and Nordas 2018, OECD Trade Policy Paper 211) show that services STRI passes through to goods export margins.
• Servicification is a complexity margin, not a substitute for it. The ECI scatter shows that high services share does not by itself guarantee a complex product space; it is better read as the binding constraint on keeping a complex production system coherent. This is the thesis Baldwin (2019, The Globotics Upheaval, Oxford University Press) pushes one step further: once services are digitally tradeable, the binding-constraint logic detaches the services input from any particular country.
• Bilateral attribution gap. The MAINSH release does not ship a partner dimension for the services series in this build; for “who are my services suppliers” questions, the OECD TiVA auxiliary origin-partner tables or the ADB MRIO are needed.

Open questions

• Does digital services delivery break the TiVA frame? TiVA 2023 extends to 2020; the 2020-2024 surge in cloud, SaaS and remote-professional services exports is mostly invisible at goods-export resolution. Baldwin (2019) argues digital services trade will dwarf goods trade this decade — a proposition the next TiVA vintage will settle.
• Is the servicification pattern cyclical? Miroudot, Lanz and Ragoussis (2009, OECD Trade Policy Paper 93) stress that services-input intensity co-moves with GVC depth. If the post-2018 fragmentation reverses GVC depth, the services share should flatten or fall, which is the under-studied counterpart of the reshoring debate.
• Policy read. Industrial policy aimed at onshoring manufacturing value is industrial policy aimed at domestic services value-added, whether or not the legislation says so. Reducing services trade costs is a complement, not a substitute, to reshoring goods production.

References

• Antras, P., & Chor, D. (2013). “Organizing the Global Value Chain.” Econometrica 81(6): 2127-2204.
• Baldwin, R. (2019). The Globotics Upheaval: Globalization, Robotics, and the Future of Work. New York: Oxford University Press.
• Baldwin, R., Forslid, R., & Ito, T. (2015). “Unbundling the Unbundling: Global Value Chains and the Production Sharing of Final Goods.” IFN Working Paper 1039, Research Institute of Industrial Economics.
• Nordas, H. K. (2018). “Services Trade Restrictiveness Index (STRI): The Trade Effect of Regulatory Differences.” OECD Trade Policy Paper 211, OECD Publishing.
• Nordas, H. K., & Rouzet, D. (2017). “The Impact of Services Trade Restrictiveness on Trade Flows.” The World Economy 40(6): 1155-1183.
• Cadestin, C., Gourdon, J., & Kowalski, P. (2016). “Participation in Global Value Chains in Latin America: Implications for Trade and Trade-Related Policy.” OECD Trade Policy Paper 192, OECD Publishing.
• Hausmann, R., & Hidalgo, C. A. (2009). “The Building Blocks of Economic Complexity.” Proceedings of the National Academy of Sciences 106(26): 10570-10575.
• Johnson, R. C., & Noguera, G. (2012). “Accounting for Intermediates: Production Sharing and Trade in Value Added.” Journal of International Economics 86(2): 224-236.
• Koopman, R., Wang, Z., & Wei, S.-J. (2014). “Tracing Value-Added and Double Counting in Gross Exports.” American Economic Review 104(2): 459-494.
• Miroudot, S., Lanz, R., & Ragoussis, A. (2009). “Trade in Intermediate Goods and Services.” OECD Trade Policy Paper 93, OECD Publishing.
• Mishra, S., Lundstrom, S., & Anand, R. (2011). “Service Export Sophistication and Economic Growth.” IMF Working Paper WP/11/300.
• OECD (2023). Trade in Value Added (TiVA) Indicators: Release Notes, December 2023. OECD Directorate for Science, Technology and Innovation.