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

Abstract

This paper examines the impact of manufacturing servitization, service trade openness, and their interaction on the total factor productivity (TFP) of the manufacturing 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 positive 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 relationship 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.