The Role of Business Services on Innovation, Productivity, Employment and Exports of Spanish, Turkish and Moroccan Manufacturing Firms

FEM32-12 | September 2009

Title

« The Role of Business Services on Innovation, Productivity, Employment and Exports of Spanish, Turkish and Moroccan Manufacturing Firms »

By

José Antonio Camacho, University of Granada, Spain

Contributeurs

Lahcen Achy, INSEA, Rabat, Morocco; Anime Basri, Ministère de l’Industrie et du Commerce, Rabat, Morocco; Marion Dovis, CEFI Université de la Méditerranée, France; Juliette Milgram, University of Granada, Spain; Teoman Pamukcu, Middle East Technical University, Ankara, Turkey; Mercedes Rodriguez, University of Granada, Spain; Erol Taymaz, Middle East Technical University, Ankara, Turkey; Kamil Yilmaz, Koç University, Istanbul, Turkey

Note :

This document has been produced with the financial assistance of the European Union within the context of the FEMISE program. The contents of this document are the sole responsibility of the authors and can under no circumstances be regarded as reflecting the position of the European Union.

Summary :

Despite their key role in production systems, business services have traditionally been ignored in productivity and innovation analyses. The scant information available (most of surveys on innovation or business performance commonly exclude service activities) has been one of the major reasons for this ignorance. Consequently, few studies empirically analyse the impact of business services on innovation, productivity or exports. However, Arnold et al. (2006) provide support for the argument that improvements in service industries contribute to enhancing the performance of downstream economic activities, constituting an essential element for promoting growth and reducing poverty. This project is an attempt to contribute to the scarce literature on business services. In particular, the main objective is to find further evidence concerning the effects of business services on innovation, productivity and export activity of manufacturing firms. For this purpose, we used microdata for Spanish, Turkish and Moroccan manufacturing firms. In Spain the Encuesta sobre Estrategias Empresariales (ESEE) contains very detailed statistics about the use of ten types of business services: advertising, legal activities, accounting and bookkeeping, tax consultancy, auditing activities, management activities, labour recruitment, training, computer programming and software consultancy. Not only information about the use of business services is included, but also on the origin of the services (in-house production, external provided or both). This allows taking two complementary points of view when analysing the use of business services by distinguishing those situations in which the business service provider is external to the firm. Data availability for business services in Turkey is considerably lower, so several proxies are employed in order to approximate the functions commonly carried out by business services, namely, variables referred to client support, metrology services and services received for innovation, operation, strategy and prototype development. To construct these variables data from three different sources are combined: the Annual Survey of Manufacturing Industries (ASMI), conducted by the State Institute of Statistics (SIS), Innovation Surveys conducted by the SIS and the Industrial Technology Services Survey (ITS Survey), specifically designed for monitoring and evaluating the effects of technology services. In the case of Morocco, four types of business services are distinguished: management training services, technical training services, management consulting services and technical consulting services. In addition, a variable that stands for the use of consulting services for technology transfer is also included. The information analysed comes from an annual survey carried out by the Ministry Industry and Trade and from the Investment Climate Assessment (ICA) elaborated by Ministry Industry and Trade and the World Bank.

Spain is used as an illustrative case of a middle income country that boosted its growth rapidly (Spain during the earlier 90´s). This benchmark case is compared to the cases of Turkey and Morocco in recent days. The effect of business services on growth can translate via prices, innovation, productivity or a differentiation strategy that allows entering new markets. In our study we focus on three aspects and their relations.

Firstly, we try to verify whether the use of business services contributes to innovation. Most of business services act as facilitators, carriers and sources of innovation for their clients firms. We investigate these links between manufacturing client firms and business service firms. In particular, econometric models where the dependent variable is innovation are estimated for the three countries. In Spain a unique innovation model is estimated, whereas in Turkey and Morocco a differentiation between product and process innovation is established. Important similarities are found among countries, although differences in the type of business services analysed have to be taken into account. The most detailed classification of business services in Spain allows identifying some industries directly related to innovation performance like research and development, computer programming, software consultancy, advertising or training. In Turkey the majority of the variables related to business services show a positive effect on innovation, the impact being somewhat lower in process innovation. In the case of Morocco it calls the attention the key role played by training services and management consultancy services.

Secondly, we examine if productivity is directly affected by increases in the use of business services. We propose to estimate a model where TFP is explained by a set of characteristics of the firms and an indicator of the use of business services. In Spain and Morocco probit models are employed, whereas in Turkey an OLS model is employed. A high number of business services industries show a positive impact on productivity in Spain, whereas in Turkey and Morocco the impact is restricted to a lower number of industries. Nevertheless measurement problems in relation to TFP, in combination with the lower use in these countries, could explain these differences.

Thirdly, we investigate how the openness of firms is affected by the use of business services. Most of the studies on the internalization patterns of business service firms point out that following clients abroad is one of the major motives for service firms to internationalise. We will estimate equations to examine whether the use of this type of services can foster export participation and export volume. These effects could take place through an increase in innovation and productivity which translates into lower unitary costs for firms and raises their probability to enter into foreign markets. On a general basis, the impact of the use of business services on exports seems to be lower than in the case of innovation and productivity, but the Turkish and Moroccan cases seem to be opposite. Thus, whereas in Turkey the majority of the variables related to business services show a positive effect on exports, in Morocco the use of business services diminishes the likelihood of exporting.

In the following sections a deep analysis of the effects of business services on the three variables mentioned below is carried out. This project can be considered a first step in the role played by services, and more specifically by business services in the MENA countries, the positive results obtained open the door for future analyses to better understand what business services can represent in the near future of these countries.