Advances in communication technology make it possible for workers in India to supply business services to head offices located anywhere. This has the potential to put high-wage workers in direct competition with much lower paid Indian workers. Service trade, however, like goods trade, is subject to strong distance effects, implying that the remote supply of services remains limited. We investigate this proposition by deriving a gravity-like equation for service trade and estimating it for a large sample of countries and different categories of service trade. We find that distance costs are high but are declining over time. Our estimates suggest that delivery costs create a significant advantage for local workers relative to competing workers in distant countries.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
6542.
Find related papers by JEL classification: F10 - International Economics - - Trade - - - General F14 - International Economics - - Trade - - - Country and Industry Studies of Trade F15 - International Economics - - Trade - - - Economic Integration F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
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