“Goods and services are increasingly bundled both in production and consumption which explains the strong linkages between services performance indicators and competitiveness in manufacturing. Therefore, it may be worth exploring how trade policy could be designed to ensure that firms face a similar policy environment whether they engage in services or goods trade – or both.” In addition improving the reliability of electricity supply, creating a more conducive environment for investing in telecoms, particularly mobile, and reducing time for exports would help developing countries entering into global value chains in clothing as well as other sectors that can be easily fragmented, notably the electronics sector. Also for upper middle income and high income countries the low-hanging fruits for gaining competitiveness in manufacturing would be elimination of tariffs and simplification of contract enforcement. However, ensuring that regulation provides the right incentives for investment in telecommunications while keeping the telecoms market competitive and not least investing in smart electricity grids are equally important, but also more costly. Concluding remarks Goods and services are increasingly bundled both in production and consumption (Fracois and Woerz, 2008, Lodefalk, 2013a,b), which explains the strong linkages between services performance indicators and competitiveness in manufacturing. Therefore, it may be worth exploring how trade policy could be designed to ensure that firms face a similar policy environment whether they engage in services or goods trade – or both. Interestingly, in low-income countries competitiveness is most sensitive to services quality and well-functioning services markets in low-technology industries, notably textiles and 24
clothing. In middle-income countries services are most important for competitiveness in medium-technology sectors, such as chemicals and parts of the electronics industry, while in high-income countries the impact of services quality and policy is highest in medium and hightechnology industries (Nordås and Kim, 2013). This suggests that better services contribute to moving up the value chain in industries where a country already has technological capacity and comparative advantage, but better services alone may not stimulate product differentiation in sectors where a country is far from the competitive edge – at least not in the short run. Finally, product differentiation often involves product development and marketing based on real-time observations of consumer behaviour and targeted advertising, which require the accumulation and handling of enormous amounts of information. The strong linkages between competitiveness in manufacturing and the density of telecoms networks allude to this and raise issues regarding cross-border transmission and storage of information. Striking a balance between open markets and protection of privacy and intellectual property rights is therefore gaining prominence in international services trade policy discussions. i
OECD, Trade and Agriculture directorate. The article draws on Nordås and Kim (2013). For more info: www.oecd.org/trade/services-trade CFI.co | Capital Finance International
References Baldwin, R. (2011), “Trade and industrialisation after globalisation’s 2nd unbundling: How building and joining a supply chain are different and why it matters”, NBER Working Paper No. 17716, December. Francois, J. F. and Woerz, J. (2008), “Producer Services, Manufacturing Linkages, and Trade”, Journal of Industry Competition and Trade, 8, pp. 199-229. Lodefalk, M. (2013a), “Servicification of manufacturing – evidence from Sweden”, International Journal of Economics and Business Research, forthcoming. Lodefalk, M. (2013b), “The Role of Services for Manufacturing Firm Exports”, Review of World Economics,(forthcoming). Nordås, H.K. and Y. Kim (2013), “The role of services for the competitiveness in manufacturing”, OECD Trade Policy Papers no 148.
About The Author Hildegunn Kyvik Nordås joined the OECD in 2005 where she leads a project on services trade restrictions, their measurement and impact. Before joining the OECD she worked at the research division in the WTO Secretariat, and she has held positions as senior researcher and research director at Christian Michelsen Institute, Norway. Her areas of research and analysis are international trade, economic growth and economic development. She has published a number of journal articles and book chapters in these fields. In addition she has led a number of projects providing technical assistance and policy advise in developing countries, including developing a macroeconomic model with the Planning Commission of Tanzania. She has taught international economics and development economics at the University of Bergen, Norway, public finance at the School of Government at the University of Western Cape, South Africa, and she has been a visiting scholar to Stanford University, USA. Ms Kyvik Nordås holds a Ph.D. in economics.