Subsector Groups to Serve Domestic Intermediate Demand

Growth in Intermediate Demand: Selling to Other Sectors Domestically

The earlier section, on final demand, illustrated how global innovator services and lowskill tradable services have provided opportunities for productivity growth through exports, whereby transactions take place directly between a service provider and the final consumer (firm or household) in another country. These growth opportunities have been independent of a country’s manufacturing base. Except for accommodation and food services, however, these internationally traded services are also more likely to serve intermediate demand from other sectors of the domestic economy.

Intermediate Sales in Total Output: Differences across Services Subsectors The 2014 share of domestic intermediate sales in total output—on average, across 40 countries in all income groups—ranged from approximately 50 percent in wholesale trade and ICT services, and 60 percent in financial and transportation services, to 70 percent in professional, scientific, and technical services (figure 4.11).

FIGURE 4.11 Global Innovator and Low-Skill Tradable Services Are More Likely Than Other Subsector Groups to Serve Domestic Intermediate Demand

Average share of domestic intermediate sales in total output across 40 countries in selected services subsectors, by group, 2014

80

Share of domestic intermediate sales in output (%)

70 60 50 40 30 20 10 0 Professional, scientific, and technical Finance ICTTransportationWholesale Accommodation and foodAdministrative and supportOther services RetailEducation Health

Global innovators Low-skill tradables Sales to manufacturing Low-skill domestic Sales to other sectors Skill-intensive social services

Source: Calculations based on the World Input-Output Database. Note: The dataset covers 40 countries in all regions except the Middle East and North Africa and Sub-Saharan Africa. LMICs, by World Bank income group classifications, had 1994 gross national income (GNI) of less than US$8,955. High-income countries had GNI exceeding US$8,955 in 1994. “Other services” refers to arts, entertainment, and recreation services and other social, community, and personal services. ICT = information and communication technology.

Rising demand for these services from other sectors in the economy, domestically, is another important growth opportunity. The previous section, on services and value chain upgrading, already explored some of these linkages with manufacturing. Here we explore the extent to which sectors outside manufacturing—agriculture, mining, construction, utilities, and other services—can also be important drivers of demand for given services subsectors. Growth opportunities independent of a country’s manufacturing base will be reinforced to the extent that intermediate sales to the manufacturing sector do not account for a disproportionate share of this rising demand.

In 2014, on average across 40 countries, the share of manufacturing in intermediate sales to other sectors was about 20 percent in wholesale trade; 10 percent in transportation, financial, and professional, scientific, and technical services; and 5 percent in ICT services.15 The question is whether higher growth in intermediate sales to manufacturing has been associated with higher overall growth for these global innovator and lowskill tradable services over time.

Intermediate Sales of Low-Skill Tradable Services Growth in wholesale and retail trade output between 2000 and 2014 was higher in the same countries where growth in intermediate sales from wholesale and retail trade to the manufacturing sector was also higher. However, growth in the share of these intermediate sales to manufacturing between 2000 and 2014 was not associated with a higher rate of growth of wholesale and retail trade output across countries (figure 4.12). In other words, selling relatively more to the manufacturing sector did not result in higher growth rates for wholesale and retail trade overall. This finding suggests that intermediate sales from wholesale and retail trade to other sectors matters too. The same holds true for transportation services (figure 4.13).

However, there may be differences across countries. Take the example of China, which experienced one of the highest rates of services output growth over this period. Intermediate demand accounted for more than 85 percent of the output growth in transportation services between 2000 and 2014 and, although sales to manufacturing was a sizable component, this rising intermediate demand also included increased sales to nonmanufacturing sectors: agriculture, mining, utilities, and construction, as well as other services. The growth of wholesale (and retail) services in China depended more than transportation services on a manufacturing core; sales to manufacturing accounted for 40 percent of the annual average output growth of wholesale and retail trade, while wholesale and retail sales to other sectors made a substantially smaller contribution (Nayyar, Cruz, and Zhu 2018).

Intermediate Sales of Global Innovator Services Among global innovator services, growth in ICT services output between 2000 and 2014 was higher in the same countries where growth in the share of intermediate sales