Servicification and Manufacturing Performance: Plant-Level Evidence from Indonesia, 1985–2014

Abstract

Servicification and Manufacturing Performance: Plant-Level Evidence from Indonesia, 1985-2014 Abstract: Services are increasingly embedded in manufacturing production and exports, but their role in developing-country manufacturing remains under-examined. This paper studies servicification in Indonesian manufacturing by combining OECD TiVA evidence on services embodied in manufacturing exports with plant-level data from Indonesia's Survei Industri for 1985-2014. The macro evidence shows that services account for a substantial share of manufacturing export value added, reinforcing the importance of producer services for manufacturing competitiveness. The plant-level analysis focuses on purchased industrial services, a narrow but observable measure of input servicification. Industrial-service use is limited but persistent: most plants report no such purchases, while user firms tend to be larger, more import-intensive, more foreign-owned, and more export-oriented. Fixed-effects regressions show that the continuous service-input share is positively associated with gross output per worker, while its relationship with value added per worker is weaker. The extensive margin is more robust: plants that purchase industrial services have higher subsequent labour productivity, especially in gross-output terms. Results for exporting firms are positive but less robust. The findings suggest that servicification is not only a macro value-chain phenomenon but also a plant-level feature associated with manufacturing performance.