The Servitization of Industrial Hubs in the Digital Era

Abstract

The increasing share of services in GDP, the servitization of manufacturing, and the productivity gains conferred by agglomeration economies, is to the advantage of large well-connected cities. Research to date suggests that to sustain rapid growth, urban hubs need a mix of activities that may include some manufacturing complemented by a clustered array of tradable and non-tradable services. Rather than attempting to create hubs focused on manufacturing activities, with some anchored to special economic zones in small cities or remote areas, developmental policies could derive more economic mileage from incentivizing the interlaced emergence of manufacturing and services in major urban centres. Digital technologies are not only tightening the linkages between manufacturing and services, they also have the potential of enhancing the gains from agglomeration thereby reinforcing the lead enjoyed by mega cities.