Björn Thor Arnarson

"Linking Services to Manufacturing Exports"

Abstract

In this paper, we analyse the interplay between services and manufacturing. This is done by identifying and quantifying a direct link between manufacturing exports and sales by service providers. For identification of this transmittance mechanism, we create a localised export exposure (LEE) variable, with the help of highly detailed geographic data, that captures the variation in demand for service inputs based on nearby exporters. Since manufacturing firms form industrial clusters while service activities are more evenly dispersed over space, we observe a high spatial variation in service firms’ exposure to manufacturing exports.

We use this spatial variation in export-driven service demand to assess the interplay between manufacturing and services. Our results show that a 1% increase in the localised export exposure increases the volume of sales of service firms by 0.19% (and plant employment by 0.11%). The results show also that the link is highly local and the strongest for service firms within 20 km from the exporters.

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