Service Trade and Productivity: Firm-level evidence from Japan

Studies on the globalization of firm activities have been progressing rapidly, but empirical studies on service trade using firm-level data have been scarce. This paper, using panel data from Japanese firms, analyzes the relationship between service trade and firm characteristics such as productivity and finds the following. 1) The number of firms engaged in service trade is far less than that engaged in goods trade, and the ratio of service trade value to total sales is also small. 2) The share of trade with overseas affiliate firms is larger in service trade than in goods trade. 3) The productivity and wage level of service trading firms are higher than those of domestic firms and goods trading firms. 4) The productivity of firms that export services beyond the boundary of their firm groups is higher than those firms that export services only to their affiliate firms. Collectively, the results suggest that the fixed costs to initiate service trade exceed that to initiate goods trade, thus indicating the potentially important role of policies to liberalize and facilitate service trade.