Support services in the extractive industries and the role of innovation

While representing a subset of all services outsourced by resource producers, support services account for 30% of employment in extractive industries in the OECD countries. Unlike mining and energy extraction, support services are the only subsector of the extractive industries where industrialized countries continue to dominate international trade. This suggests that despite producing 80% of the value of global output of extractive industries, emerging economies face difficulties in producing internationally competitive support services. As a result, we analyze the experience of industrialized countries and formulate policy implications for those emerging economies that aim at developing internationally competitive support services in extractive industries. By analyzing existing literature, historical data for the USA, and recent cross-country evidence, we conclude that support services are skill-intensive and benefit from the economy-wide innovation (as proxied by R&D spending). This implies that policy-makers in emerging economies should not only target innovation in the extractive industries but also likewise pursue long-term policies of building knowledge-based economies.