# 1. Introduction

Global value chains (GVCs) have become one of the defining characteristics of today’s patterns of international trade and production. Services have a prominent place in GVCs as they provide a “dual” function, namely as an intermediate input in production as well as coordination facilitator. In the “coordination role,” they "glue" together the different stages of production across countries and allow companies to specialize further and coordinate production and trade in GVCs. Ever since the early work by Francois (1990a, 1990b) and Jones and Kierzkowski (1990), the role of services in the economy and international trade has been emphasized. With the rapid expansion of supply chain networks in recent years, services such as transport, logistics and supply chain services and ICT services have become crucial for coordinating the production spread across geographical boundaries.

Although the growth of GVC trade globally was mainly found in machinery, electronics and transportation to begin with, value addition in the services sectors has also now become increasingly fragmented and organized across borders. Improvements in transport, digital infrastructure and the dismantling of existing trade barriers in goods and services have greatly contributed to the expanding reach of GVCs in all sectors. Moreover, the fragmentation of manufacturing production has also been associated with increased outsourcing activities of not only manufacturing tasks but also services. The back office and ICT services of several EU and US firms is now done in India. Such services linkages, including consultancy services, financial services, maintenance, and repair services, are essential.

As companies specialize and grow, they tend to dedicate even more time to the coordination and organization of their core business (see among others Antrás and Chor 2012). Miroudot and Cadestin (2017) estimate that service inputs, whether domestic or foreign sourced, account for about 37 percent of the value of manufacturing exports. This number increases substantially to 53 percent when adding service activities that take place within manufacturing firms. Facilitating provision of services and thereby increasing GVC participation through backward linkages enables firms, particularly downstream manufacturing firms, to access a greater variety and quality of services at competitive prices, which in turn improves their participation in GVCs and overall productivity.

Hence, the role of services as input into production is substantial. They are the engine for many firms to integrate into GVCs. Transport, logistics, ICT services, marketing, consultancy and professional services play an important coordinating role in GVCs. Empirical evidence suggests that effective provision of services is important for downstream firm performance, including in India (Arnold et al., 2015; Arnold et al., 2011) and that imported services contribute to the export intensity of manufacturing in India (Goldar et.al 2018). Effective provision of high-quality services through removing policy barriers related to supply of services; strengthening the institutional framework and investing in human capital will support the integration of India and other developing countries into GVCs and help them reap the associated economic benefits of specialization, scale and productivity growth.

This paper explores the relationship between the use of service inputs and GVC participation and contributes to the emerging empirical literature in this area. India provides an interesting setting to study this as a fast-emerging economy where the services sector plays an important role. We document the extent of integration of India in global value chains using both macro and micro firm-level data (for the 2