Producer Services And Manufacturing Industry Upgrade: A Two-Sector Model

Manufacturing industry plays an important role in each country. China is the third biggest manufacturing country behind America and Japan. However, resources and labor have always been at the expense of extensive mode of development. China is at the downstream position of worldwide manufacturing industry chain, and takes part in the low added value link like assembling in international division system. The distribution of benefits in the global manufacturing industry is also at a disadvantage. After 2008, as the international financial crisis, the survival of manufacturing enterprises in Dongguan and other places face tremendous pressure. Many enterprises actively began to shift to the mainland in order to reduce production costs. Due to the rising cost of production factors like labor and land resources, China's manufacturing industry has already been hard to maintain its competitive advantage by relying on high energy consumption and low-cost factors of production. China's manufacturing industry is facing challenges of restructuring and upgrading. It has become a prominent reality that how to promote China's manufacturing industry transforming and upgrading stably and efficiently. Producer services' pulling effect on manufacturing industry is very important in the process of restructuring and upgrading of the manufacturing industry. It's an inevitable trend to develop productive service industry in order to restructure and upgrade China's manufacturing industry, and also an important path to a manufacturing power.This paper split the traditional manufacturing industry into two relatively independent sectors: manufacturing and producer services. Use the improved Feder two departments model to deduce the basic model. The model explains the influence of producer service in affecting manufacturing upgrade, and also analyzes the ways of producer service promoting manufacturing upgrade. Then through empirical analysis to verify the effect of producer service toward China's manufacturing upgrade. Empirical part uses the panel data from year 2000 to 2007 of China's 31 provinces, including the added value, total output of manufacturing and also relevant data of transportation &telecommunications, finance & insurance, real estate business, integrated technology services to verify the influence of productive services of China toward manufacturing upgrade. First, utilize the basic model of producer service promoting manufacturing upgrade for empirical regression. Then, China's manufacturing industry is divided into two categories of high-end manufacturing and low-end manufacturing, and been done econometric analysis separately with producer services. By analysis of the regression results obtained the following conclusions: (1) There is a significant impact of Chinese producer services on the upgrading and developing of manufacturing industry. (2) Finance and insurance industry plays a greater role in the upgrading of manufacturing industry. (3) The effect of technology services on the upgrading of manufacturing has shown inhibition. (4) Producer services have more effect on the upgrading of high-end manufacturing industry than low-end manufacturing industry. Through the results of empirical analysis, this paper presents policy recommendations that allow services to play a positive role in the manufacturing industry upgrade.