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Trade and direct investment in producer services and the domestic market for expertise

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  • James Markusen
  • Thomas Rutherford
  • David Tarr

Abstract

Foreign producer services can provide substantial benefits for domestic firms. We build on earlier monopolistic-competition models of intermediate producer services in this paper. Results show that: (1) while foreign services are partial-equilibrium substitutes for domestic skilled labour, they may be general-equilibrium complements, (2) service trade can provide crucial missing inputs that reverse comparative advantage in final goods, (3) the `optimal' tax on imported services may be a subsidy, and (4) in our dynamic formulation, there may be earnings losses for immobile workers along a transition path that suggest potentially important equity consequences of reform.

Suggested Citation

  • James Markusen & Thomas Rutherford & David Tarr, 2005. "Trade and direct investment in producer services and the domestic market for expertise," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 758-777, August.
    • Handle: RePEc:cje:issued:v:38:y:2005:i:3:p:758-777
    DOI: 10.1111/j.0008-4085.2005.00301.x
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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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