of manufactured goods, their development can increase manufacturing production. But since services and manufacturing compete for resources, the development of services can be at the expense of manufacturing. For example, the development of the services sector has drawn resources away from manufacturing not just in industrial countries like the United States and the United Kingdom, but also in developing countries like India and possibly the Philippines (see, for example, Kochar et al. 2006).

Some early studies examined the link between services as inputs in manufacturing and the pattern of manufacturing exports using single national input‐output tables. For example, Francois and Woerz (2008) find significant and strong positive effects of increased business services openness (greater imports) on some industries. Their reliance on national data means that inputs cannot be broken down according to their origins, and services <mark>inputs are mismeasured due to two‐way trade in intermediate products</mark> . More recently, Stehrer, Foster, and de Vries (2012), Timmer et al. (2013), and Liu et al. (2017) used the newly constructed international input‐output tables to measure more precisely the embodied services and indirect trade through other sectors.

Liu et al. (2017) focus on two key services sectors: financial services and business services. Domestic services development has a mixed effect on the revealed comparative advantage (RCA) of manufacturing exports. Liu et al. (2017) quantify the indirect role of services in international trade in goods and construct new measures of revealed comparative advantage based on domestic value added in gross exports.<sup>14</sup> In their econometric analysis of the impact of services development on RCA in manufacturing sectors, the key explanatory variable is the interaction between a measure of the development of financial (or business) services and the financial (or business) services intensity of each manufacturing sector. Services development reduces the RCA of manufacturing exports in manufacturing sectors with low embodied services (basic and fabricated metals) but increases it in sectors with a high degree of embodied services (food, beverages and tobacco). Liu et al. also consider the role of services imports in overcoming the limitations of domestic services markets. In countries with less developed services, manufacturing exports benefit more from access to foreign services inputs. Such a bypass effect is also discussed in a theoretical model by Ju and Wei (2010), which derives the conditions for financial globalization to serve as a substitute for reforms of domestic financial systems. These results suggest that lower services trade barriers can help developing countries bypass inefficient domestic services provision and promote their manufacturing exports through intersectoral linkages.

The patterns across East Asian developing countries of their direct and indirect domestic value‐ added exports of services reveals the current state and potential evolution of their comparative advantage in services. In Figures 15 and 16, developing East Asian countries are placed in the

> 14 Note that RCA based on gross exports (used as a dependent variable) can cause an endogeneity problem because the embodied services (used as explanatory variables) are part of gross manufacturing exports. Liu et al. (2017) avoid this problem because manufacturing RCA is based on the value added created by the factors employed in manufacturing sectors, excluding the embodied services in gross exports contributed by the factors employed in services sectors.

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