Business services and the changing structure of European economic growth

A pervasive trend that characterised the past two decades of European economic growth is that the share in the economy of commercial services, and particularly business services, grows monotonically, and this mainly to the expensive of the manufacturing sector. The structural shift reflects a changing and increasingly complex social division of labour between economic sectors. The fabric of inter-industry relations is being woven in a new way due to the growing specialisation in knowledge services, the exploitation of scale economies for human capital, lowered costs of outsourcing in-house services, and the growing encapsulation of manufacturing products in a 'service jacket'. Business services, which inter alia includes the software industry and other knowledge-intensive business services (KIBS), play a key role in many of these processes. We argue that in recent decades business services contributed heavily to European economic growth, in terms of employment, productivity and innovation. A direct growth contribution stems from the business-services sector's own remarkably fast growth, while an indirect growth contribution was caused by the positive knowledge and productivity spill-overs from business services to other industries. The spill-overs come in three forms: from original innovations, from speeding up knowledge diffusion, and from the reduction of human capital indivisibilities at firm level. The external supply of knowledge and skill inputs exploits positive external scale economies and reduces reduces the role of internal (firm-level) scale (dis)economies associated with these inputs. The relatively low productivity growth that characterises some business-services sectors may be a drag on the sector's direct contribution to overall economic growth. The paper argues that there is no reason to expect a "Baumol disease" effect as long as the productivity and growth spill-overs from KIBS to other economic sectors are large enough. Finally, the paper concludes by pinpointing some policy 'handles' that could be instrumental in boosting the future contibution of business services to overall European economic growth.

Services in European Policies. Bruges European Economic Policy (BEEP) Briefing 16/2007

This paper’s objective is twofold. Firstly, it presents the case for services-related policies in the current European Union (EU). The services economy is frequently misunderstood, due to old and new myths that stem from the classic economic tradition. These myths obscure the role of the services economy in economic development. Nonetheless, the European services economy faces specific problems, such as lack of market integration, which amplifies arguments that justify policy actions toward services within a framework where market and systemic failures do apply. Secondly, this paper focuses on existing services-policies at the EU level, paying special attention to the internal market for services policies and to the complementary role of primarily non-regulatory policies. Within a comprehensive policy framework, each individual policy will have a higher impact, improved implementation and easier acceptance. Synergies among services-related policies should be promoted; the internal market policies, enterprise and industrial policies, competition policies and regional policies may take the lead in such a framework. Since the Lisbon Strategy, services have begun to gain recognition in EU policy agendas. This paper attempts to increase their visibility and to highlight their crucial role in European integration and in economic growth and social welfare

The growth of business services and the economic cycle

Business services have become one of the most dynamic activities in modern economies. Their high growth rates in value added and employment support its outstanding position. The paper identifies short-term cyclical and long-term structural components in the business services growth. The relationship between business services and the economic cycle and the wide spectrum of reasons explaining structural growth are also analysed. The conclusions point out the importance of business services for economic progress of current economies. It seems that the structural component is more relevant than the cyclical one. The available data for some main OECD countries show that there is still a potential margin for further structural growth for business services. Some policies implications can be drawn from all this.

University libraries as open innovation partners: Harnessing hidden potential to foster global entrepreneurship

Universities and their libraries are well-positioned to provide a rich source of market information that can help resource-constrained start-ups to globalise their business operations. As one of the more important elements of the innovation ecosystem, knowledgesharing can help start-ups to make data-driven, strategic decisions, rather than basing forward momentum on unreliable intuition. This column highlights the author's experience with a consultancy project that featured a university's library's support of entrepreneurial globalisation, the various implications for both start-ups as well as entrepreneurs, and lessons learned that could become the norm for more open innovation and collaboration between libraries, entrepreneurs, and their start-ups

Analysing the Contribution of Business Services to European Economic Growth. Bruges European Economic Research (BEER) Papers 9/February 2007

The sector business services contributes directly and indirectly to aggregate economic growth in Europe. The direct contribution comes from the sector’s own dynamism. Though the business-services industry appears to be characterised by strong cyclical volatility, there was also a strong structural growth. Business services actually generated more than half of total net employment growth in the European Union since the second half of the 1990s. Apart from this direct growth contribution, the sector also contributed in an indirect way to economic growth by generating knowledge and productivity spill-overs for other industries. The knowledge role of business services is reflected in its employment characteristics. The business-services industry created spill-overs in three ways: original innovations, knowledge diffusion, and the reduction of human capital indivisibilities at firm level. The share of knowledge-intensive business services in the intermediate inputs of the total economy has risen sharply in the last decade. Firm-level scale diseconomies with regard to knowledge and skill inputs are reduced by external deliveries of such inputs, thereby exploiting positive external scale economies. The process goes along with an increasingly complex social division of labour between economic sectors. The European business-services industry itself is characterised by a relatively weak productivity growth. Does this contribute to growth stagnation tendencies à la the socalled “Baumol disease”? The paper argues that there is no reason to expect this as long as the productivity and growth spill-overs from business services to other sectors are large enough. Finally, the paper concludes by suggesting several policy elements that could boost the role of business services in European economic growth. This might to achieve some of the ambitious Lisbon goals with respect to employment, productivity and innovation

Varieties of service economies in Europe

This paper identifies the varieties and dynamics of service economies in Europe, analysing the role of knowledge base and innovative efforts and their evolution across time and countries. Results based on aggregated macroeconomic data indicate that there is no convergence trend towards a single service economy model. Moreover, different service economies models can be associated with institutional and welfare state diversity. When analysing a comprehensive set of indicators at a disaggregated level a more detailed pattern of service economies emerges. The structural composition of countries plays a prominent role, while heterogeneity is driven by uneven knowledge bases and innovative efforts

The growth of business services and the economic cycle

Business services have become one of the most dynamic activities in modern economies. Their high growth rates in value added and employment support its outstanding position. The paper identifies short-term cyclical and long-term structural components in the business services growth. The relationship between business services and the economic cycle and the wide spectrum of reasons explaining structural growth are also analysed. The conclusions point out the importance of business services for economic progress of current economies. It seems that the structural component is more relevant than the cyclical one. The available data for some main OECD countries show that there is still a potential margin for further structural growth for business services. Some policies implications can be drawn from all this

Competitiveness and the Kaldor paradox : the case of Spanish service sector

Dentro de unas economías de servicios cada vez más globalizadas, una nueva corriente de explicación del comercio internacional de servicios se hace necesaria. Algunos servicios están en la actualidad siguiendo las mismas tendencias que las industrias manufactureras empezaron hace algunas décadas. En este contexto, los factores relativos a los costes podrían aumentar su papel en esta competencia global de servicios. Así, los servicios podrían comportarse de forma parecida a los bienes y la paradoja de Kaldor podría ser menos importante en estas actividades que hace unos años, dentro de un contexto donde el desarrollo de la UME actúa en sentido opuesto. Como caso de estudio particular, el presente documento analiza empíricamente las cuotas de mercado en relación con los tipos de cambio efectivos reales para la economía española. Los resultados muestran que la paradoja de Kaldor continúa teniendo gran importancia en el comercio español, aunque existe una significativa heterogeneidad entre las distintas actividades de servicios en cuanto a su sensibilidad frente a los precios/costes. En general, las últimas tendencias no muestran signos de que disminuya el papel de los factores que no son los precios en el comercio internacional (particularmente en algunos servicios a empresas), aunque muchos servicios todavía continúan siendo ligeramente más sensibles a los precios que otros sectores económicos.In the current wave of service globalisation, a new dynamic explaining international trade in services emerges. Some services are following similar trends to the ones initiated by manufacturing industries some decades ago. In this context, costs factors, the ones leading the major part of the current global sourcing in services, could gain importance in global services competition. Services could behave more similarly to goods and the Kaldor paradox may potentially be less remarkable that some years ago, in a context where the achievement of the EMU perform in the opposite way. As a particular empirical case study, empirical analysis of trade market shares in relation to effective real exchange rate is carried out for the Spanish case. Results shows that the Kaldor paradox continues having a strong importance in Spanish trade, although not all the service sectors have the same price/costs sensibility. Recent trends also present uneven results depending on the service sector, but in general there are not signs of decreasing the role of non-price/cost factors in international trade (in particular business services), although many services continue to be slightly more sensitive to relative prices than other industries