The impact of domestic regulations on international trade in services: Evidence from firm-level data

In order to promote international trade in services, most bilateral and multilateral trade agreements aim at eliminating the discriminatory barriers. However, domestic regulations, which apply to all firms alike and do not intend to exclude foreign sellers, are often seen as serious obstacles to cross-border trade in services. This paper proposes an assessment of the impact of these regulations on international trade of professional services. Our empirical analysis combines OECD measures of domestic regulation and detailed French data on firm-level bilateral export of professional services. Results show a robust and a sizeable negative impact of domestic regulations on both the decision to export and the values exported by each firm. This impact does not vary with firms’ productivity, and remains significant when we focus on the European Union market, where French exporters do not face discriminatory barriers. We conduct a quantification exercise based on our estimates and find an average ad-valorem tariff equivalent of domestic regulations of 60% in 2007. The ad-valorem tariff equivalent ranges from 26% to 88%, depending on the country.