Trade and direct investment in producer services and the domestic market for expertise

Abstract

Foreign producer services can provide substantial benefits for domestic firms. We build on earlier monopolistic-competition models of intermediate producer services in this paper. Results show that: (1) while foreign services are partial-equilibrium substitutes for domestic skilled labour, they may be general-equilibrium complements, (2) service trade can provide crucial missing inputs that reverse comparative advantage in final goods, (3) the 'optimal' tax on imported services may be a subsidy, and (4) in our dynamic formulation, there may be earnings losses for immobile workers along a transition path that suggest potentially important equity consequences of reform. JEL classification: F12, F16, F23Commerce international et investissement direct dans les services de production et le marche´inte´rieur de l'expertise. Les services de production en provenance de l'e´tranger peuvent engendrer des avantages substantiels pour les entreprises domestiques. Dans ce me´moire, les auteurs construisent sur la base de certains mode`les ante´rieurs de concurrence monopolistique de services de production interme´diaires. Les re´sultats montrent que: (1) alors que les services de l'e´tranger sont des substituts pour le travail domestique spe´cialise´en e´quilibre partiel, en e´quilibre ge´ne´ral, ils peuvent eˆtre des comple´ments; (2) le commerce de services peut fournir des intrants cruciaux qui manquent et ce faisant renverser les avantages comparatifs dans les produits finaux; (3) la fiscalite´optimale impose´e sur les services importe´s peut eˆtre une subvention; et (4) dans la formulation dynamique du mode`le, il peut y avoir perte de revenus pour les travailleurs immobiles le long du sentier de transition, ce qui sugge`re qu'il peut y avoir des conse´quences importantes au plan de l'e´quite´associe´es a`certaines re´formes.We thank an anonymous referee of this journal for helpful comments. The views expressed are those of the authors and not necessarily those of the World Bank or its executive directors. Markusen is also affiliated with the NBER, CEPR, and CEBR (Copenhagen).

Have Imported Producer Services Improved Manufacturing in Shanghai?

“…ICT could optimize producer service trade structure through reducing technology gap in order to realize manufacturing upgrading. Research has also shown that when a country increases its producer service trade to compensate for the shortage of domestic final products, it generates an externality by introducing technology advancements (Markusen 1989;Markusen, et al 2005;Francois 1990;Arnold et al 2008;Amit and Konings 2007). Yang also found that the OECD countries often utilize imported producer services to enhance the development of the industries that they have traditional enjoyed comparative advantages (Yang 2015).…”

On the Contributions of Knowledge-Intensive Business-Services Multinationals to Laggard Innovation Systems

“…Increasing concerns with the validity of linear ways of thinking about the innovative process represent a call to go beyond this traditional, shallow view of economic evolution. Dedicated research must also tackle softer forms of innovation generation and facilitation, as well as the development of forward and backward linkages among organizations (Markusen, Rutherford, & Tarr, 2005).…”

Modeling Services Liberalization: The Case of Tanzania

“…This paper builds on the work of Markusen, Rutherford and Tarr (2005), Jensen, Rutherford and Tarr (2007) and Balistreri, Rutherford and Tarr (2008). Markusen, Rutherford and Tarr developed a stylized model where foreign direct investment is required for entry of new multinational competitors in services, but they did not apply this model to the data of an actual economy.…”