External services, structural change and industrial performance

Summary:

The rise of the service economy is the predominant feature of structural change in the 20th century. A major element in this process has been the increasing demand from producers for external services inputs to be provided by specialised suppliers as opposed to by in-house activities.

The paper investigates the process of 'tertiarisation' - the shift of economic activities away from such traditional areas as agriculture and manufacturing towards services. It further analyses the impact of inputs from external services on the competitive performance of European industries, compared to that of Japan and the USA. The main finding is that manufacturing industries with high shares of intermediary inputs from knowledge based services are characterised by higher levels of labour productivity and larger potentials for product differentiation.

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