The Impact of Liberalizing Trade in Services on Trade in Goods: An Empirical Investigation

In this paper we use a large dataset to explore whether the liberalization of trade in services is beneficial for the international trade in goods. We find empirical evidence supporting this notion. We investigate which types of trade in services are more important for the international trade in goods and find that trade in transportation and communication services generate the largest impacts on trade in goods. We also investigate which types of trade in goods are likely to benefit from the liberalization of trade in services and find that, under the 2‐digit ISTC classification, all the categories are likely to exhibit a positive impact.     

The Division and Size of Gains from Liberalization in Service Networks*

If two disjoint country service networks involving a small and large country are connected as part of international liberalization in the presence of network externalities, the per capita gain for the small country from access to a large network will be large, and the per capita gain for the large country will be small. In contrast to goods, the benefits of liberalization in network‐related services are more likely to be approximately equally divided between large and small countries than is true of trade in goods, where benefits accrue disproportionately to the small country. We also argue that non‐cooperation in network‐related services trade may involve more extreme retaliation than suggested for trade in goods by the optimal tariff literature, so that relative to a non‐cooperative outcome, gains from liberalization in network‐related services become larger than from liberalization in goods. We develop simple models which we use for numerical examples showing these points, along with an empirical implementation for global telecoms liberalization for the US, Europe, Canada, and the rest of the world using the framework developed in the paper. This shows similar proportional gains to regions, consistent with the theme of the paper that goods and services liberalization differ.     

Trade liberalization in environmental goods

Trade negotiations have started to pay attention to liberalization in environmental goods (EGs), whose production may require dirty intermediate goods. We construct a two-country trade model to explore the effects of trade liberalization in EGs on the local pollution, the global environment and welfare in the presence of such an environmental conundrum. We find that countries do not necessarily benefit from trade liberalization in EGs in the absence of an environmental policy. With the assistance of an upstream pollution tax, trade liberalization in EGs improves each country's welfare. This result holds independent of whether the upstream market is competitive or not, or whether we have upstream trade across countries. For asymmetric countries, trade liberalization in EGs improves the world welfare and the welfare for the country if it has a smaller demand for EGs; or experiences less damage from the production of dirty inputs; or values environment improvement more.     

Differentiated Products,Divided Industries: Firm Preferences over Trade Liberalization

The recent focus on firms in international trade suggests two conjectures about preferences over trade policy – only the most productive firms should support freer trade, and industries can be internally divided over reciprocal liberalization. This paper clarifies the content and scope of these claims. The most productive firms are generally not the greatest beneficiaries from trade liberalization and may oppose further liberalization due to increased competition in export markets from compatriot firms. Exporting industries will feature no support for trade if foreign competition is too strong or barriers too unequal. The key analytic factor generating intra‐industry division is product differentiation, both directly, by increasing export opportunities for less efficient firms, and by inducing home market effects wherein larger countries are more competitive. The implications of these findings for the distributional effects of liberalization and the study of trade politics are discussed.     

服务贸易的货物贸易条件效应研究——基于伯格斯模型的分析与扩展

文章基于伯格斯模型,分析检验了服务贸易的净进口与我国货物价格贸易条件恶化之间的关系,初步证明了该模型在我国的适用性。进一步地,文章对2004-2008年我国价格贸易条件恶化有所趋缓这一特征进行了分析。结果表明,不同服务部门的净进口对我国货物贸易条件的影响不尽相同。文章得出的政策启示在于:当考察我国服务业开放和服务贸易自由化的收益时,要同时注意到货物价格贸易条件恶化可能带来的福利损失;我国在制定服务业对外开放与服务贸易自由化发展战略时,采取逐步开放和参与的战略尤为重要;另外,可以优先加强对通信、建筑、计算机和信息服务、咨询以及电影音像五大类服务部门的扶持以促进其出口。     

Determinants of International Trade Flows in Travel and Passenger Services*

In the past decade there has been a great increase in interest in trade in services. This paper estimates the determinants of trade flows for two service industries, travel and passenger transportation services, for 16 OECD countries Traditional and more recent models of import demand and demand for export functions are utilized The empirical results indicate similarity between trade in goods and trade in services. Price competitiveness is an important factor in determining the trade flows in travel services and like trade in manufactured goods, exchange rate variations have some influence on the volume of travel and passenger transportation services     

The influence of international trade on labour productivity in services: The case of Brazil in the 1990s

In the developing world, services account for a rising share of domestic employment and international trade. Thus, it is important to know whether trade liberalization contributes to labour productivity in services. We explore this question, examining the 1990–2000 Brazilian trade liberalization. We find that growth of imports and exports strengthened labour productivity in services, but the contribution was smaller in subsectors with more college graduates, and this negative offset was larger in subsectors that received large foreign direct investment (FDI) inflows. Improved access to imported manufactured intermediate inputs raised downstream services' labour productivity and downstream manufacturing firms benefitting from tariff cuts enacted by trade partners generated spillovers that improved the labour productivity of upstream service subsectors. However, FDI inflows and investments in human and physical capital modified these downstream factors. We conclude that the Brazilian trade liberalization strengthened productivity in services, but unequally across subsectors.     

Trade liberalization and Firms’ export performance in China: Theory and evidence

The focus of the literature surrounding trade liberalization has recently shifted from trade liberalization in imported final goods to studying the effects of trade liberalization in imported intermediate inputs. This emphasis fits very well the trade liberalization experience of China following its accession to the WTO in 2001. In this paper, we build a multi-sector heterogenous-firm model with trade in both intermediate goods and final goods, and we ask: How do final-goods producers respond to trade liberalization in imported inputs? Do they respond differently across sectors? How do firms respond differently to trade liberalization in imported-outputs instead? We separate the total effect of trade liberalization into those caused by inter-sectoral resource allocation (IRA) and by within-sector selection of firms according to productivity (which we call Melitz selection effect). It is the IRA effect that gives rise to differential impacts of trade liberalization in different sectors. These impacts include changes in the probability of entry into the export market, the fraction of firms that export and the share of export revenue. To test our hypotheses, we carry out both quantitative analysis and empirical analysis by using Chinese firm-level data. The results are consistent with our theoretical predictions.     

The Effects of Trade Liberalization between Heterogeneous Countries on Endogenous Mergers

This paper examines the effects of trade liberalization on merger behavior. We endogenize merger choice among owners in an oligopolistic industry in asymmetric countries to analyze the consequences of trade cost reductions on competitiveness and welfare. In this context, the non‐cooperative game supports asymmetric market structures. We also find that trade liberalization is not necessarily pro‐competitive in countries with the competitive advantage, even if trade costs are completely abolished. Moreover, the tariff‐jumping explanation of international mergers does not necessarily apply. The welfare analysis shows that merger behavior can significantly alter any gains from liberalization. Countries should consider enforcing competition in regional agreements. Specifically, to avoid a reduction in domestic welfare following trade‐liberalizing reductions in trade costs, a high‐cost country's optimal policy may be to ban international mergers.     

Trade and expropriation

We examine the effect of international trade on expropriation in a setting where law enforcement is costly. We show that, in general equilibrium, trade liberalization can reduce expropriation activities and have a first-order effect on the gains from trade. One interpretation of our results is that unskilled-labor abundant countries facing popular militia or rebel groups will experience amplified gains from trade, as expropriation levels and cost of enforcement decline with trade liberalization. However, the model also admits the possibility that globalization causes an increase in crime, particularly for skilled-labor abundant countries.     

Trade in goods and services: Two sides of the same coin?

This study analyzes the interrelationship between goods and services in production and trade using the most recent input–output tables for all OECD countries. It first describes the role of services in production and trade in goods. Next, it proposes two models for analyzing the impact of services trade liberalization on industrial structure. The first captures the role of trade in tasks when countries have different technology i) in production of services; and ii) in organizing production. The latter has to the author's knowledge not been analyzed in the trade literature before. Countries with superior organizational technology (e.g. Japan) will strengthen their comparative advantage in manufacturing following trade liberalization in services. The second model explores the interrelationship between intermediate goods and services i) when they are substitutes; and ii) when they are complements. In both models the gains from trade liberalization is non-linear in trade costs. Going the last mile of liberalization has a much larger impact than taking the first steps.     

Trade Liberalization and Wage Inequality: Evidence from India

We evaluate empirically the impact of the dramatic 1991 trade liberalization in India on the industry wage structure. The empirical strategy uses variation in industry wage premiums and trade policy across industries and over time. In contrast to most earlier studies on developing countries, we find a strong, negative, and robust relationship between changes in trade policy and changes in industry wage premiums over time. The results are consistent with liberalization‐induced productivity increases at the firm level, which get passed on to industry wages. We also find that trade liberalization has led to decreased wage inequality between skilled and unskilled workers in India. This is consistent with the magnitude of tariff reductions being relatively larger in sectors with a higher proportion of unskilled workers.     

Vertical specialization in North–South trade: Industrial relocation,wage and welfare

This paper presents a North–South trade model with vertically linked industries and examines how declining costs of trade across stages of production encourage vertical specialization and affect wages and welfare. As trade costs fall below a threshold, the production of all final goods relocates to the South and vertical specialization emerges. In some industries, production of intermediate goods also relocates against comparative costs because of benefits of co‐location, and further declines in trade costs lead to reshoring. A country may temporarily lose from falling trade costs, but both countries can be better off after trade costs fall sufficiently.     

Liberalizing Services Trade In APEC: A General Equilibrium Analysis with Imperfect Competition

The paper studies services-sector trade liberalization in the Asia–Pacific Economic Co-operation (APEC) Forum using a global, multicountry, multisector applied general equilibrium model with an imperfectly competitive service sector. Reducing the service sector's nontariff barriers is modeled by eliminating the possibility for oligopolistic firms to price-discriminate between client countries within APEC and lowering the fixed costs of the firms doing service exporting business. The results suggest that services trade liberalization reinforces existing sectoral trade balances. Increase in demand for intermediate services tends to reinforce rather than counteract the role of primary factors in determining sectoral comparative advantage. The western APEC members received the greatest welfare gains from services trade liberalization, while the developing economies gained more if only tariffs were eliminated.     

Trade in capital goods generated by international diffusion of technology

This paper examines the dynamics of national income of developing countries, which must import advanced capital goods so as to use technology which has been learned. The main result is that depending on foreign countries for capital goods has no negative effects on real wage rates, which are determined solely by labour productivity of indigenous industries. The analysis also covers the mechanism of export-oriented growth of developing countries and its effects on developed countries. All of the explanations are quite simple, however, none of them can be derived if international learning or trade in capital goods is ignored.     

我国运输服务贸易发展特征及战略选择

运输服务贸易作为传统的服务贸易项目之一,我国运输服务贸易的国际地位日益提高.运输服务贸易发展呈现出贸易额快速增长、逆差显著、外资企业数量与投资额逐年上升、主要贸易伙伴为欧美韩等发达国家、运输方式以海运为主等特征.然而,交通运输业发展滞后,运力不足、运输企业规模小实力弱、对外开放度较高等因素也在制约着我国运输服务贸易的发展.因此,应从多层面制定正确的发展战略:政府层面为运输企业创造良好的发展环境、积极应对国际航运贸易壁垒、全方位发展海陆空运输业;行业层面充分发挥行业协会的作用;企业层面采取多种途径扩大运输企业规模效益、提高技术水平与服务质量、健全企业服务网络等,从而进一步促进我国运输服务贸易的快速发展.     

Trade imbalance in international message telephone services

An econometric model is estimated to identify determinants of trade imbalance in international message telephone services markets. Results indicate that asymmetric market structure is important in explaining bilateral market imbalances for high income country pairs. For low and high income country pairs, GDP per capita is the dominant cause of traffic imbalances. The findings suggest that telecommunications liberalization policies are effective in reducing distortions in international traffic flows and settlement payments. However, liberalization should be accompanied by developmental programmes that enhance income per capita and telecommunications network investment in developing countries. Such programmes may be effective in providing a more equitable distribution of the gains from telecommunications reform across countries.     

Trade Gains, Paretian Transfer and the Tragedy of the Commons

Consider trade liberalization between two countries, each of which produces two private goods and provides on a voluntary basis one public good (the common). In these circumstances, what are the consequences of trade liberalization on the production of the public good and on welfare in both countries? Using a Ricardian framework, we first show that the opening of trade increases the opportunity cost of producing the public good in both countries and will therefore reduce the aggregate supply of the public good. On the other hand, at the autarky equilibrium, only one country supplies the public good, the other “free rides”. The analysis of the welfare incidence of the opening of trade then reveals that the country which provides the public good under autarky always enjoys a welfare gain from trade while the free rider under autarky does not unless the terms of trade are sufficiently in its favour to compensate for the reduction in the supply of the common. Finally, if all countries involved in trade liberalization can without cost coordinate their supplies of the common, then the implementation of the first-best outcome is shown to be possible with a conditional Paretian transfer scheme.     

Exploring policy options in joint intertemporal-spatial trade models using an incomplete markets approach

In this paper we discuss the desirability of service trade liberlization in the presence of incompleteness of markets where there is both inter-spatial and intertemporal trade between countries. We use numerical simulation methods for insights and relate our discussion to the General Agreement on Trade in Services (GATS) in the WTO. We interpret the absence of intertemporal trade as an absence of intermediation services provided by both domestic and foreign service providers. For simplicity, we consider extreme cases where intertemporal intermediation services can only be provided by domestic providers, so that when intertemporal trade in services is not allowed, markets are not complete. To our knowledge, this type of models is not used in the trade literature as general comparative statics results are unavailable. We first consider the liberalization of trade in financial services in an inter-spatial and intertemporal model of two countries, and we show how services liberalization can be welfare worsening in the presence of a tariff on spatial trade in goods. We show that this can hold in an artificial world with no domestic financial services provider. We compare financial service trade autarky in which there is no intermediation to financial service trade liberalization which involves costless intertemporal intermediation provided by foreign service providers. We also consider a more complex (and realistic) world where costly intermediation services can be provided by both domestic and foreign providers. This paper draws in part on material of an earlier paper, “Financial Services Trade Liberalization in A Joint Spatial Intertemporal Multi-Country Model” by Huang et al. (2004). We acknowledge the financial support from The Centre for Intentional Governance Innovation (CIGI), Waterloo, Canada and from National Social Science Foundation of China (SSFC Grant 07AJL002), National Natural Science Foundation of China (NSFC Grant 70825003) and “Humanities and Social Science” Major Project, Chinese Ministry of Education (Grant Number 07JJD790145).     

Trade volume and economic growth in the MENA region: Goods or services?

This paper explores the macroeconomic and sectoral effects of goods and service trade on the economic performance of MENA countries for the period 1960–2011. While the MENA region has been widely neglected in the trade and growth literature, this paper offers a decomposition of MENA GDP growth in order to disentangle the contributions of both service and goods trade. The results show a positive association between real GDP and both service and goods trade. The interaction term between trade in goods and trade in services is negative, suggesting that as goods trade increases, the marginal effect of service trade on real GDP decreases. However, the overall effect of service trade on real GDP is positive. The decomposition of GDP growth reveals a greater impact of goods trade, although service trade is important, and for most countries greater than the effect of tertiary enrolment.