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A Model of Trade Liberalization in Services

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  • Clement Yuk Pang Wong
  • Jinhui Wu
  • Anming Zhang
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    Abstract

    This paper develops an intra-industry service trade model taking into account important features of services. We find that service trade liberalization between identical economies is welfare enhancing when the pre-trade domestic market liberalization is limited. This holds regardless of the degree of trade liberalization and of the mode of supply. However, if the pre-trade environment is characterized by a free-entry equilibrium, then service trade liberalization is not necessarily welfare improving. It is welfare enhancing if the trade liberalization is full and the mode of supply is cross-border. The gain from trade in our model comes from the improvement in service quality-better matching between consumers' ideal varieties and firms' product specificity. The implications for the mode of supply in service trade are also explored. Copyright � 2006 The Authors; Journal compilation � Blackwell Publishing Ltd. 2006.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Review of International Economics.

    Volume (Year): 14 (2006)
    Issue (Month): 1 (02)
    Pages: 148-168

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    Handle: RePEc:bla:reviec:v:14:y:2006:i:1:p:148-168

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    Cited by:
    1. Ishikawa, Jota & Morita, Hodaka & Mukunoki, Hiroshi, 2008. "FDI in Post-Production Services and Product Market Competition," CCES Discussion Paper Series 1, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
    2. Damien Broussolle, 2012. "A note on the links between manufacturing, goods and services exports," Working Papers of LaRGE Research Center 2012-09, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.

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