Analysis Of The Endogenous Relationship Between Manufacturing And Service Industries: Evidence From The Yangtze River Delta

Many studies show that as intermediate inputs, services can promote competitiveness of manufacturing. However, the influence of service on manufacturing, namely the demand effect, has been ignored. Based on the 2002,2005 and 2007 input-output table of Shanghai, Jiangsu and Zhejiang province, this paper examines the endogenous relationship between manufacturing and service industries. In the region of the Yangtze River Delta, the service industries can enhance the development of manufacturing, but not vice versa. By building a simultaneous equation model, empirical analysis based on panel data of 16 cities in Yangtze River Delta from the years 2000 to 2007 supports our conclusion. Therefore, when governments make policies to encourage the development of service industries, they should base not only on the supply side, but also on demand side.