On 14th March 2024, as part of the Private Sector Development Research Network (PSDRN), the Wheeler Institute for Business and Development hosted a seminar: “Beefing up the service sector: Commodity exports to China and production network spillover.” Led by Giorgio Chiovelli (Associate Professor of Economics at Universidad de Montevideo and former LBS Research Fellow) and moderated by Tiago Martinho (Executive Director of the Wheeler Institute for Business and Development), the event presented new research investigating how a dramatic rise in demand for beef exports has driven structural transformation in Uruguay’s domestic economy, cascading effects beyond agriculture sector through the production network to service sector. This research was co-authored by Francesco Amodio (McGill university) and Serafin Frache (Universidad de Montevideo).
Rethinking the “China Shock” for the Global South
In the past 30 years, China has emerged as the world’s manufacturing hub, with its GDP per capita increasing over eleven-fold and its share of global trade rising from 2.5% to 12%. Much of the existing studies on “China Shock” have focused on the disruptive impact of Chinese manufacturing imports. Yet, for many countries in the Global South, this shock also manifests as an export boom, driven by China’s growing demand for industrial inputs and soft commodities like food and seafood.
Unlike the imported goods from China, which have a diffuse range of goods, developing countries’ exports to China typically concentrate on a few key commodities. This raises critical questions on the domestic economy for developing countries: When export demand boost is concentrated in a few products and firms, do effects spill over beyond exporters to other sectors? Does the export boom accelerate or hinder the broader structural transformation in the developing economies?
Uruguay: An Export Economy Test Case
To answer these questions, this research zoomed in on Uruguay, an open and export-oriented economy experiencing significant “China Shocks”. With a population of just 3.4 million people but nearly 12 million cattle, the country consistently ranks among the world’s top ten beef exporters. From 2006 to 2019, Uruguay’s beef exports to China exploded from $3.5 million to $1.13 billion, now representing 60% of Uruguay’s total exports and 1.7% of the national GDP.
This remarkable growth makes Uruguay an ideal setting to study how a concentrated export shock propagates through an economy. The country’s beef industry is highly developed and sophisticated, with around 25,000 to 37,000 livestock producers supplying just 33 processing establishments, 17 plants of which account for 92% of total export volume. Such characteristics make Uruguay’s beef industry the ideal object to understand how an export shock propagates from a few concentrated firms to the domestic economy.
Tracing the Ripples Through the Beef Production Networks
To capture the spillover effects of the beef export boom, the researchers collaborated with Uruguay’s tax authority to map out the production networks. Using anonymous firm-level administrative data from 2014 to 2019, the research team captured firms’ domestic inter-firm transaction activities, identified firms’ direct and indirect relationships with beef exporters and trade with China, and tracked changes in their economic outcomes over time, including sales, assets, and workforce size.
The team then constructed the China Beef Export Shock Index and the regression between such index and firms’ economic outcomes over the period, identified and measured the strength of causal relations between beef export growth and the economic outcomes of firms connected to the beef production networks.
Key Findings
Service Sector: Leading the first-order effects
The research first measured the benefits gained by 15,000 firms directly supplying beef exporters. Regression analysis shows a significant boost in sales for these firms, with initially smaller suppliers gaining more than larger counterparts.
Strikingly, the largest gains in sales were seen outside of the agriculture sector. Firms in manufacturing and services sectors experienced double the sales growth of agricultural firms. The most pronounced increase occurred in information and communication, real estate, retail, and transportation – industries essential for helping beef exporters scale operations.
Beyond sales, the export boom benefits extended to other economic variables. Employment level, average wages, and productivity (measured by sales per worker) all increased among suppliers, with the most substantial improvements again concentrated in the service sector. These findings suggest that export booms can drive not just more businesses, but also better-paying jobs and higher productivity across the economy.
Supplier Purchases: Setting off second-order effects
The network effects extended beyond the direct suppliers of beef exporters. The research found that as these suppliers benefited from the export boom, they began demanding more services, setting off a second wave of ripple effects. This rise in purchasing activities also led to greater supplier diversification with more suppliers involved, increasing the complexity of the network while reducing its overall concentration. The findings show that while the initial export shock entered the economy through the agricultural sector, it was the service sector that amplified and transmitted the benefits throughout the domestic economy, acting as a crucial catalyst in the diffusion of the export boom.
Counterfactual analysis: Estimating the “what if” Effects
To assess the overall impact of the export boom, the research team simulated a counterfactual scenario in which the surge in beef exports never occurred. Using a general equilibrium model of production networks, they estimated that Uruguay’s total sales (a proxy for GDP) would have been 1.7–1.8% lower, amounting to a cumulative $5 billion loss over the study period. Notably, one-third of this estimated loss ($1.6 billion) stemmed from the indirect network effects. This highlights the crucial role of production network linkages in transmitting export growth benefits throughout the economy.
New Narratives for Commodity-led Growth
This research offers a compelling counterpoint to the traditional “Dutch Disease” narrative, which warns that the concentrated commodity booms could harm other sectors. In Uruguay’s case, the sure in beef exports revealed powerful complementarities, where demand booms spread through network effects and fuel growth in service sectors. Echoing the question of whether the future of developing countries lies in services, this study suggests that commodity exports can channel benefits into service sectors and drive structural transformation.
Policy Lessons for Exporting Economies
Findings from this research carry important policy implications for commodity-exporting countries. Even when export growth is driven by a small number of firms or products, production linkages can distribute gains more widely—if the network is well understood and supported. Governments should invest in mapping domestic supply chains and facilitating connectivity, particularly in services. This becomes critical in both positive and negative shocks, such as trade disruptions or geopolitical uncertainty. Tax authorities, too, can benefit from understanding how commodity booms translate into broader economic activity, which in turn shapes fiscal capacity.
About the speaker
Giorgio Chiovelli is an Associate Professor of Economics at Universidad de Montevideo, a position he has held since 2023. He obtained his Ph.D. in Economics from the Università di Bologna in 2015. Before his current role, Dr. Chiovelli served as an Assistant Professor at Universidad de Montevideo from 2019 to 2023 and as a Research Fellow at the London Business School from 2015 to 2019. His research focuses on Development, Political Economy, and Economic History. Dr. Chiovelli’s work has been published in leading journals including American Economic Journal: Applied Economics, and the Journal of the European Economic Association. His studies often explore the interplay between economic development, political institutions, and historical factors, with a particular emphasis on Africa and Latin America. As co-director of the MONT² Econ Lab and co-organizer of RIDGE’s Workshop Towards Sustained Growth, Dr. Chiovelli actively contributes to advancing economic research and fostering academic collaboration in the region.
About PSDRN
The Private Sector Development Research Network is a community of institutions with an active research agenda on Private Sector Development. The PSD Research Network is a collaboration between the Wheeler Institute, British International Investment (BII), Centre for Global Development (CGD), European Bank for Reconstruction and Development (EBRD), IDB Invest, International Finance Corporation, International Growth Centre (IGC), Think Tank ODI, Islamic Corporation for Development of the Private Sector (ICD) and the African Development Bank (AfDB), which aims to promote the exchange of ideas and facilitate collaboration.
About the writer
Luise Lin is an MBA 2026 candidate at London Business School and an Outreach and Communication Intern at the Wheeler Institute for Business and Development. Prior to joining London Business School, she worked at Boston Consulting Group as Consultant in Australia, where she advised clients across private and public sectors as well as social enterprises. Luise is passionate about leveraging managerial science, innovative business models, and financial solutions to drive scalable economic development impact in developing regions. She is particularly interested in the intersections of management, policy and social impact, exploring how private sector solutions can contribute to sustainable development.