Impact of manufacturing servitization on total factor productivity under global trade openness

• Published date: 01 August 2024
• Author: Hongsen Wang,Shuanxi Fang,Qing Guo,Bo Meng
• Date: 01 August 2024
• DOI: http://doi.org/10.1111/rode.13087

REGULAR ARTICLE

Impact of manufacturing servitization on total

factor productivity under global trade openness

Hongsen Wang

1

| Shuanxi Fang

1,2

| Qing Guo

1

|

Bo Meng

3,4

1

School of Business Administration,

Northeastern University, Shenyang,

China

2

China Institute for Reform and

Development, Haikou, China

3

Japan External Trade Organization,

Institute of Developing Economies,

Chiba, Japan

4

The Collaborative Innovation Center

for Emissions Trading System

Co-constructed by the Province and

Ministry, Hubei University of Economics,

Wuhan, China

Correspondence

Hongsen Wang, School of Business

Administration, Northeastern University,

Shenyang 110819, China.

Email: whs221749396@163.com;

1810423@stu.neu.edu.cn

Funding information

National Social Science Fund of China

“From Liberalized Trade in Services to

Comprehensive Openness”, Grant/Award

Number: 19@ZH027; IDE-JETRO

international project “Re-evaluation of

China’s Total Factor Productivity and

Resource Misallocation”, Grant/Award

Number: 2023_1_60_001

Abstract

This paper examines the impact of manufacturing

servitization, service trade openness, and their interaction

on the total factor productivity (TFP) of the manufactur-

ing industry. Using panel data covering 43 economies,

the study finds that higher levels of manufacturing

servitization and service trade openness lead to higher

TFP in the manufacturing industry. In addition, the posi-

tive impact of manufacturing servitization on TFP is

greater in economies with higher levels of service trade

openness. The study also shows that trade creation and

research and development innovation mediate the rela-

tionship between manufacturing servitization, service

trade openness, and TFP. Finally, the paper finds that the

positive impact of manufacturing servitization, service

trade openness, and their interaction on TFP is greater

in developing countries and in low- and high-TFP

manufacturing industries. This research contributes

to understanding the intricate relationship between

manufacturing servitization, service trade openness,

and manufacturing TFP.

KEYWORDS

manufacturing servitization, manufacturing total factor

productivity, service trade openness

JEL CLASSIFICATION

D57, F15, O14

Received: 23 March 2023 Revised: 16 October 2023 Accepted: 28 December 2023

DOI: 10.1111/rode.13087

904 © 2024 John Wiley & Sons Ltd. Rev Dev Econ. 2024;28:904–928.wileyonlinelibrary.com/journal/rode

1|INTRODUCTION

Manufacturing servitization refers to the integration of services into manufacturing processes or

the provision of value-added services alongside manufactured products (Kamal et al., 2020). Ser-

vice trade openness, on the other hand, refers to the liberalization and facilitation of the cross-

border trade in services (Cattaneo et al., 2010). Manufacturing servitization and service trade

openness are mutually reinforcing, enabling manufacturers to offer comprehensive solutions,

access global services, and enhance competitiveness and productivity in the market. This com-

bination not only benefits individual companies but also contributes to economic growth and

development at the national and global levels.

As shown in Figure 1, over the past decade, the value added from services in high-income

countries has consistently accounted for approximately 70% of GDP. This percentage indicates

the significant existence and contribution of the service sector in these economies. In terms of

service trade, high-income countries also have the highest proportion in total trade, demonstrat-

ing their global competitiveness and service trade openness. The combination of service-oriented

manufacturing and service trade openness in these countries may contribute to improving

manufacturing productivity through enhanced competitiveness, knowledge exchange, resource

optimization, customer-centric approaches, and innovation (Langhammer, 2007). In middle-

income countries, the proportion of value added from services has gradually increased and now

exceeds half of the domestic gross value added. This situation indicates the increasing importance

of the service sector in their economies. However, the proportion of service trade in total trade is

the lowest among all income groups in middle-income countries. This situation suggests that they

may be limited by lower value-added goods exports or less developed service sectors, as well as

higher barriers to service trade. The value added from services in low-income countries has

declined to less than 40% of GDP. This decrease can be attributed to various factors, such as a

higher reliance on low-end industries in these countries. The share of service trade in total trade

fluctuates greatly in low-income countries, reflecting the volatility of their socioeconomic environ-

ment and the shrinking base oftotal trade.

(a) Services value added as a share of GDP (b) Trade in services as a share of total trade

0

10

20

30

40

50

60

70

80

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Services value added (% of GDP)

Year

HIC LIC MIC

0

5

10

15

20

25

30

Trade in services (% of total trade)

Year

HIC LIC MIC

FIGURE 1 Service industry and service trade trends. Compiled and plotted based on data from the World

Bank and Organization for Economic Cooperation and Development (OECD). (a) Services value added as a

share of GDP. (b) Trade in services as a share of total trade. HIC, represent high-income countries; LMC, low-

income countries, MIC, middle-income countries. [Colour figure can be viewed at wileyonlinelibrary.com]

WANG ET AL.905