Greening through Servitization: Firm-Level Evidence from Chinese Exporters

Reconciling economic growth with environmental sustainability is a critical challenge for developing economies, particularly within their export-oriented manufacturing sectors. Servitization, a key trend in industrial upgrading, offers a potential pathway to address this tension, yet its micro-level environmental implications remain underexplored. This paper investigates the impact of manufacturing input servitization on the environmental performance of exporting firms. We first construct a theoretical framework integrating servitization decisions, pollution emissions, and firm heterogeneity. We then propose a novel firm-level measure of input servitization by merging Chinese firm-level production, customs trade data, and input-output tables from 2000 to 2014. Our empirical analysis yields three main findings. First, manufacturing input servitization significantly reduces the pollution intensity of exporting firms, a result that is robust to a battery of sensitivity checks. Second, this green effect operates through two primary mechanisms: promoting in-house R&D innovation and facilitating the expansion of imported inputs. Third, the environmental benefits are highly heterogeneous; they are driven predominantly by foreign service inputs, while domestic service inputs show no significant effect, and are more pronounced for firms with lower financing constraints. This study provides novel micro-level evidence on how servitization can help developing countries navigate the growth-environment trade-off, offering concrete policy insights for fostering green transformation through industrial upgrading.