Professional Business Services and their Role in the EU Economy. Measuring ‘Knock-on’ Effects.

This paper investigates the wider economic role of professional services within the EU. Besides their importance measured by shares in value added, gross output or employment, professional services contribute significantly to the economic performance in other sectors via forward linkages. Traditionally these linkages are defined by the Inverse-Leontief Matrix of an Input-Output system. However, we introduce a measure based on the methodology of Fujita (2008) that is more closely related to the concept of forward linkages that is intended to be captured by most empirical studies. Our proposed linkages describe the embodied content of professional services per unit of gross output in the other industries, and first we derive some useful properties. These linkages are, secondly, used to outline the importance of other business services (that consists of around two thirds of professional services) visually by network graphs, showing the most important forward links in an economy. Input-Output data from 2005 show that the sector ‘other business services’ holds a central position in the inter-industry network in most countries of the EU-27. Thirdly, we introduce some new summary measures of economic knock-on effects out of these linkages. We find that other business services account for the highest forwarded knock-on effects. In 2005 the total embodied value of other business activities amounted to nearly 10% of gross output in our sample of 20 countries of the EU in 2005 – the highest of all the industries covered. The value added share of other business activities attributable throughout the economy is 14% compared to its own value added share of 8% in the economy of the EU-20 sample. These findings highlight the economic importance of other business services in general and professional services in particular.