Servicification and GVCs: Evidence from High-Tech Indian Manufacturing Firms

The role of services is important and growing in international trade. Services are not only traded across borders on their own but are also combined with exports of goods (embedded services) and are critical inputs in the production process of exported goods (embodied services). This research broadly explores the relationship between ‘servicification’, global value chain (GVC) participation, and firm productivity. In particular, the paper studies the effects of the wide range of services that firms use on the export intensity of Indian high-tech firms. The study is conducted for the 2001–2016 period using the Centre for Monitoring Indian Economy Pvt. Ltd. (CMIE) Prowess database. It also examines the relationship between GVC participation and firm productivity. We control for heterogeneity amongst firms, sample selection, firm characteristics, and reverse causality. The results indicate that there is an effect of services inputs. Buying in more services is associated with higher export intensity for firms. Our empirical outcomes also confirm the presence of a positive relationship between participation in international activities and firm productivity. Overall, the study provides new firm-level evidence of the role of services as inputs in high-tech Indian manufacturing firms. These findings have strong policy implications and may help policymakers choose the best policy options for how trade policy and domestic regulation are crafted.