Services value added
Adding it to the gravity model
May 19, 2025
Role of services
With the ever decreasing cost of trade, separating a value up to tasks level.
Feedback mechanism from the third unbundling may benefits domestic manufacturing.
In fact, exporting high-value services directly can be a good strategy for growth.
More here
Services in manufacturing
Melitz: non-trivial trade cost makes small-margin firms lose.
Services can lower this cost: brigde information gap on the market, business customs and regulations in other countries, especially for new firms entering export market
In Sweden, firms with higher services embeded in its final products increases its intensity of export
In Indonesia, 10 per cent increase in service intensity of a firm increase its productivity by 7 to 8 per cent
Today
We are going to do similar gravity regression as I show in Advanced International Economics (Ekinterla, see here)
We are going to add two variables: share of foreign services and share of domestic services.
The rest, we follow the same structure as my ekinterla course.
My talk should be limited in time. Let’s focus on exercises.
Gravity
You will see four files:
2018.csv contains the ICIO file
gravity.R is the gravity regression file
gravity2018.xlsx is the BACI data i’ve manipulated for the course
service.R is the share of services extraction file
ICIO
ICIO is an international input-output table maintained by the OECD. Download here and see here for explanatory notes.
The ICIO table shows you how much an industry in a country’s output is used by industries in different countries.
By the same token also shows where inputs for an industry in a given country come from.
ICIO Structure
Shares
Discussion
Try to replicate my results and let’s discuss.
I will standby. Unmute yourself anytime or alternatively use chat.
You can share your screen if needed.