This paper constructs a theoretical framework of trade to investigate how business services function as a mean of reducing costs and then encouraging research activities. Our theoretical model predicts that a country with a higher degree of business service specialization tends to have higher research intensity andsubsequently higher income. Using a panel dataset for 38 countries over the period 1996-2015 to test the theoretical predictions, various robust estimations support our theoretical predictions.
- Business services
- Research intensity