Trade and Innovation in Services: Evidence from a Developing Economy

Abstract

Studies on innovation and international trade have traditionally focused on manufacturing because neither was seen as important for services. Moreover, the few existing studies on services focus only on industrial countries, even though in many developing countries services are already the largest sector in the economy and an important determinant of overall productivity growth. Using a recent firm‐level innovation survey for Chile to compare the manufacturing and ‘tradable’ services sector, this paper reveals some novel patterns. First, even though services firms have on average a much lower propensity to export than manufacturing firms, services exports are less dominated by large firms and tend to be more skill intensive than manufacturing exports. Second, services firms appear to be as innovative as – and in some cases more innovative than – manufacturing firms, in terms of both inputs and outputs of ‘technological’ innovative activity, even though services innovations more often take a ‘non‐technological’ form. Third, services exporters (like manufacturing exporters) tend to be significantly more innovative than non‐exporters, with a wider gap for innovations close to the global technological frontier. These findings suggest that the growing faith in services as a source of both trade and innovative dynamism may not be misplaced.

Innovation and Productivity in Services: Evidence from Chile

“…However, our results show that size is consistently more important in manufacturing. This coincides also with empirical evidence provided by Zahler et al (2014), where they find that size is more relevant for manufacturing firms to engage in innovation and exports. In addition, the results show that being an exporter and using patent protection have a positive effect on the probability of engaging in innovation investment in both sectors.…”

“…Indeed, part of this sector is also significantly tradable and subject to the potential benefits coming from international competition (see Zahler et al 2014). Tether (2005), using information for several European countries, finds that service firms in fact do innovate, although the propensity for technological innovation is lower than that for manufacturing innovation.…”

'Manufacturing or Services - That is (not) the Question'

“…High-tech manufacturing sectors show the highest rates of companies introducing new goods (more than 40%, based on 15 EU countries); for comparison, 30% of the firms in knowledge intensive services are found to introduce new services. Despite the fact that the available evidence often looks at innovation through a manufacturing 'lens' (Zahler et al, 2014), more and more insights are gained on the specific nature of services innovation. For example, services innovation tends to be more driven by an external technological pull -i.e.…”

Innovation performance in service companies and KIBS vis-à-vis manufacturing: the relevance of absorptive capacity and openness

“…The understanding of innovation in services has evolved swiftly and significantly (Zahler et al, 2014). Three main approaches can be identified -technologist/assimilation, demarcation/differentiation, and synthesis/ integrative -to disclose which basic assumption on innovation in services takes the lead in contemporary research (De Fuentes, Dutrenit, Santiago, & Gras, 2015;Djellal et al, 2013;Droege et al, 2009).…”

“…Some studies demonstrate that service sector is as innovative as the manufacturing sector -for instance, Álvarez, Bravo-Ortega and Zahler (2015), which analysed 7192 Chilean companies, Carvalho, Costa and Caiado (2013) that focused on 4504 Portuguese companies, Evangelista and Vezzani (2010) and Sirilli and Evangelista (1998) that examined Italian companies, or Forsman (2011) which explored the types of innovations developed in small Finnish manufacturing and service companies. Other studies found evidence that service companies have low propensity to innovate (López & Ramos, 2015), and fall behind their manufacturing counterparts as to innovation performance (Tacsir, 2011;Zahler, Iacovone, & Mattoo, 2014). In sharp contrast with the latter set of studies, Gallego et al (2015), analyzing Innovation performance in service companies and KIBS vis-à-vis manufacturing: the relevance of absorptive capacity and openness 7765 companies from Colombia, concluded that service companies, regardless the type of innovation, innovate more than manufacturing companies.…”