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Why do manufacturing firms produce services? Evidence for the servitization paradox in Belgium

Author

Listed:
  • Catherine Fuss

    (Economics and Research Department, NBB)

  • Pierre Blanchard

    (UPEC)

  • Claude Mathieu

    (UPEC)

Abstract

The increasing role of services in GDP results from the growing share of service industries, but also from the fact that firms produce services along with goods. This paper investigates the determinants of service provision by manufacturing firms. First, it develops a model of differentiated products with, on the demand side, complementarities between the firm’s goods and services, and, on the supply side, rivalry in the allocation of expertise between the production of goods and the provision of services. Second, it provides an econometric assessment of the determinants of servitization for manufacturing firms, using a fractional Probit model with heterogeneity, controlling for endogeneity with respect to unobserved firm characteristics. Both the theoretical model and empirical estimates point to a non-linear relationship between servitization and firm productivity. The relationship is further shaped by the sector environment as well as intrinsic characteristics of the goods and services supplied.

Suggested Citation

  • Catherine Fuss & Pierre Blanchard & Claude Mathieu, 2017. "Why do manufacturing firms produce services? Evidence for the servitization paradox in Belgium," Working Paper Research 330, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:201711-330
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    File URL: https://www.nbb.be/doc/ts/publications/wp/wp330en.pdf
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    References listed on IDEAS

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    1. Arnold, Jens M. & Javorcik, Beata S. & Mattoo, Aaditya, 2011. "Does services liberalization benefit manufacturing firms?: Evidence from the Czech Republic," Journal of International Economics, Elsevier, vol. 85(1), pages 136-146, September.
    2. Lee, Sunghee & Yoo, Shijin & Kim, Daeki, 2016. "When is servitization a profitable competitive strategy?," International Journal of Production Economics, Elsevier, vol. 173(C), pages 43-53.
    3. Holger Breinlich & Anson Soderbery & Greg C. Wright, 2018. "From Selling Goods to Selling Services: Firm Responses to Trade Liberalization," American Economic Journal: Economic Policy, American Economic Association, vol. 10(4), pages 79-108, November.
    4. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    5. Matthieu Crozet & Emmanuel Milet, 2014. "The Servitization of French Manufacturing Firms," Working Papers 2014-10, CEPII research center.
    6. Papke, Leslie E. & Wooldridge, Jeffrey M., 2008. "Panel data methods for fractional response variables with an application to test pass rates," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 121-133, July.
    7. Matthieu Crozet & Emmanuel Milet, 2017. "Should everybody be in services? The effect of servitization on manufacturing firm performance," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(4), pages 820-841, December.
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    Cited by:

    1. Ariu, Andrea & Mayneris, Florian & Parenti, Mathieu, 2020. "One way to the top: How services boost the demand for goods," Journal of International Economics, Elsevier, vol. 123(C).
    2. Dobbelaere, Sabien & Kiyota, Kozo, 2018. "Labor market imperfections, markups and productivity in multinationals and exporters," Labour Economics, Elsevier, vol. 53(C), pages 198-212.
    3. Ariu, Andrea & Nilsson Hakkala, Katariina & Jensen, J. Bradford & Tamminen, Saara, 2019. "Service Imports, Workforce Composition, and Firm Performance: Evidence from Finnish Microdata," ETLA Working Papers 70, The Research Institute of the Finnish Economy.
    4. Milena Kern & Jörg Paetzold & Hannes Winner, 2021. "Cutting red tape for trade in services," The World Economy, Wiley Blackwell, vol. 44(10), pages 2858-2886, October.
    5. Martina Magli, 2020. "The Direct and Indirect Effect of Services Offshoring on Local Labour Market Outcomes," CESifo Working Paper Series 8413, CESifo.

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    More about this item

    Keywords

    Services; multi-product firms; firm behavior; Total Factor Productivity; panel data analysis; non linear model.;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D29 - Microeconomics - - Production and Organizations - - - Other
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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