Providing Services to Boost Goods Exports? Theory and Evidence

The largest manufacturing exporters are typically bi-exporters: firms that export goods and services. Motivated by a series of new stylised facts, this paper develops a new theoretical model of oligopolistic competition featuring heterogeneous firms where goods and services are one-way essential complements: the product is essential to consumption while the service is optional. The model predicts that bi-exporters sell more of their good and at a higher price than standard exporters. By means of a detailed dataset on goods and service exports for Belgium and a novel instrumental strategy, we find that by associating services to goods firms can sell 32% higher values, charge 25% higher prices and sell 13% higher quantities than firms that do not. Therefore, services act as a growth determinant for trade in goods.