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Regulatory heterogeneity as obstacle for international services trade

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Author Info
Henk Kox ()
Arjan Lejour ()

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Abstract

International trade in services is hampered by non-tariff barriers that originate from national regulations. Not only the level of regulation in home or export country matters, but also the inter-country differences in regulation for service markets. Regulatory measures tend to affect fixed costs rather than variable costs. The fact that regulations often differ by market, means that the fixed costs of complying with regulations in an export market are in fact sunk market-entry costs.

We prove that policy heterogeneity between countries has a negative impact on bilateral service trade. We develop a new index of bilateral policy heterogeneity, and apply it in a gravity model for explaining service trade among EU countries.

The empirical results support our theoretical prediction: the degree of regulatory heterogeneity is inversely related to the level of bilateral service trade. Simulations for the EU show that if countries make more use of mutual recognition, bilateral trade in commercial services among EU countries could increase by 30 to 60 percent.

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Publisher Info
Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Papers with number 49.

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Date of creation: Sep 2005
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Handle: RePEc:cpb:discus:49

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Related research
Keywords: services trade regulatory barriers policy heterogeneity EU internal market EU

Other versions of this item:

Find related papers by JEL classification:
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
L5 - Industrial Organization - - Regulation and Industrial Policy
L8 - Industrial Organization - - Industry Studies: Services
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nico van Leeuwen & Arjan Lejour, 2006. "Bilateral Services Trade Data and the GTAP database," CPB Memoranda 160, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  2. Roland de Bruijn & Henk Kox & Arjan Lejour, 2006. "The trade-induced effects of the Services Directive and the country of origin principle," CPB Documents 108, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  3. Kox, Henk L.M. & Lejour, Arjan, 2006. "Dynamic effects of European services liberalisation: more to be gained," MPRA Paper 3751, University Library of Munich, Germany. [Downloadable!]
  4. Arjan Lejour & Hugo Rojas-Romagosa & Gerard Verweij, 2007. "Opening Services Markets within Europe: Modelling Foreign Establishments in a CGE Framework," CPB Discussion Papers 80, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
    Other versions:
  5. Keith Walsh, 2006. "Trade in Services: Does Gravity Hold? A Gravity Model Approach to Estimating Barriers to Services Trade," The Institute for International Integration Studies Discussion Paper Series iiisdp183, IIIS. [Downloadable!]
  6. Kox, Henk L.M. & Nordås, Hildegunn Kyvik, 2007. "Services trade and domestic regulation," MPRA Paper 2116, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  7. Henk Kox & Arjan Lejour, 2005. "Liberalisation of the European services market and its impact on Switzerland," CPB Memoranda 130, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
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