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Trade and Innovation in Services: Evidence from a Developing Economy

Authors


  • We want to acknowledge the Chilean National Institute of Statistics and the Ministry of Trade and Industry for facilitating the database we used in our paper. We would also like to thank the participants of MEIDE 2011 at San José, Costa Rica, and an anonymous referee for helpful comments. The authors also acknowledge the Nucleo Milenio Initiative NS100017 ‘Intelis Centre’ for partial funding. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organisations, or those of the Executive Directors of the World Bank or the governments they represent.

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.

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