Not All Service Imports Are Created Equal. The Role of Imported Services in Promoting Goods' Export Growth

ABSTRACT The paper studies the dynamic interplay between service imports and goods export performance, examining how different types of service imports influence both the extensive and intensive margins of goods exports. Utilising a comprehensive dataset of transaction‐level data on goods and services trade alongside firm‐level balance sheet data from Slovenia spanning from 2006 to 2020, the study isolates the effects of service imports on various dimensions of goods exports, accounting for firm size, productivity, foreign ownership, and other industry‐specific variables. The findings show a clear positive relationship between specific service imports and the intensive margin of goods exports, suggesting that services related to transport, consulting, and marketing significantly enhance the value of goods exported. In addition, the impact of service imports varies greatly depending on the type of service, with immediate and direct export‐related services showing the biggest effects. Interestingly, the relationship of imported services with the number of export markets or the diversity of products exported per market was not found to be significant. Overall, the results highlight that service imports play a crucial role in enhancing the value of goods exports, particularly through services directly associated with the export process. However, the impact on expanding market reach or product diversity appears limited.