SERVICEGAP

The Impact of Service Sector Innovation and Internationalisation on Growth and Productivity

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 Obiettivo del progetto (Objective)

'The primary objective of this research project is to produce a comprehensive study on the impact of market services on aggregate economic growth in the EU and its comparative performance relative to competitor regions, especially the US. The research is divided into three areas: Productivity and its drivers in service industries; Firm strategies in the knowledge-based economy and Internationalisation of service markets and growth. In the first area the project will explore the impact of intangible assets such as R&D and firm- specific training in explaining the EU’s poor performance relative to the US. It will also examine interactions between information and communications technology and intangible investments to gauge to what extent these are complementary strategies to enhance productivity and growth. This area will also contain a detailed investigation of linkages between service sectors and manufacturing through trade in intermediate inputs, and the effect of the competitive and regulatory environment of service industries on growth in the EU. Area 2 on the knowledge based economy will investigate external sources of knowledge creation through an analysis of outsourcing of service functions in the service and the manufacturing sectors and will provide a detailed analysis of productivity and employment effects of innovation activities in different services industries and countries. The third area on internationalisation of services will analyse the extent of international trade, international investment and international outsourcing of services and investigate their impacts on productivity, employment and growth. The methods employed will be mostly quantitative economic analysis, supplemented by case studies. The results of the project will provide a significant advancement of the knowledge base on the impact of service industry performance for strengthening productivity, growth and employment in the EU and so will be a useful resource for policy makers.'

Introduzione (Teaser)

Business services that require a high level of knowledge in a particular field play an important role in generating economic growth. Creating new education policies and knocking down barriers to international trade and investment will produce lasting change in this respect.

Descrizione progetto (Article)

The EU-funded project 'The impact of service sector innovation and internationalisation on growth and productivity' (http://www.servicegap.org (SERVICEGAP)) investigated the role of services in various aspects of economic performance in EU countries. The four general areas were: the financial crisis, productivity growth, firm strategies in a knowledge-based economy and offering services in more than one EU country.

SERVICEGAP produced analytical research papers containing original research, synthesis papers and policy briefs. Research on linkages between services and manufacturing revealed that the services sector output and productivity were less affected by the financial crisis than production sectors. This was due mainly to lower exposure to international markets.

A study of the financial sector on regulation and economics performance highlighted the important role of banks in facilitating growth. Also, underlined in the review papers and presented at the project meetings was the risk of moving to smaller and less globalised banks, especially for smaller countries.

Research on drivers of productivity covered intangible investment, linkages between manufacturing and services, and impact of the regulatory environment. Other important findings included the valuable workforce training linked with information technology and intangible assets in service sectors. The SERVICEGAP team also identified poor training offered to older persons, and the impact of trust and fear on productivity.

The distinction between manufacturing and services has become blurred with many firms increasingly involved in both, raising shares of services occupations in the manufacturing workforce.

Investing in product marketing, distribution and transport systems, for example, has a positive impact on export market shares of manufacturing firms. Innovation in service enterprises is related to higher productivity with the link being strongest for marketing innovations. According to project research, product innovation appears to generate employment growth in services.

A study on the internationalisation of services covered three areas: trade, investment and outsourcing. Trade in services is substantial and growing, although smaller than for goods. Multinational and larger firms are more likely to trade, and one-way traders (export or import) are more prevalent in services than in manufacturing.

International investment through mergers and acquisitions leads to growth in services and tends to have stronger effects on the performance of firms in services than in manufacturing. Enterprises experiencing positive productivity growth after foreign acquisition are more likely to be located in high-tech sectors and in larger, less open economies.

The research results support further energy and effort to be expended in strengthening the services sector between EU member countries and deepening economic relations with the rest of the world. On the website there are three sections of over 45 discussion papers as excellent resources for further review. There are downloadable review papers, discussion papers and policy briefs. The policy briefs are useful summaries for policy decision-makers.