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Cross-Border Trade and FDI in Services

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  • Fillat Castejón, Carmen
  • Francois, Joseph
  • Woerz, Julia

Abstract

Working with a panel dataset of of OECD countries over the decade 1994-2004, we examine linkages between cross-border trade and FDI in the service sectors. We first develop a consistent analytical framework for the application of the gravity model jointly to services trade and commercial presence (i.e. FDI), using a composite model of delivery that offers testable hypotheses about the roles of different modes of services supply as complements or substitutes. We further link our estimates to policy variables measuring market regulations that may act directly or implicitly as barriers to trade. We find robust evidence of complementary effects in the short-run, which is reinforced in the long run by an increased potential for cross-border imports based on previous FDI inflows. A detailed analysis by individual service sectors highlights business, communication and financial services as showing the largest potential for cross-border trade when market regulations are reduced and when commercial presence increases.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7074.

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Date of creation: Dec 2008
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Handle: RePEc:cpr:ceprdp:7074

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Keywords: FDI; services; services trade; trade and FDI substitution and complementarity;

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Cited by:
  1. Christen, Elisabeth & Francois, Joseph & Hoekman, Bernard, 2013. "Computable General Equilibrium Modeling of Market Access in Services," Handbook of Computable General Equilibrium Modeling, Elsevier.
  2. Joseph Francois & Bernard Hoekman, 2010. "Services Trade and Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 642-92, September.
  3. Carolina Lennon, 2009. "Trade in Services: Cross-Border Trade vs. Commercial Presence. Evidence of Complementarity," wiiw Working Papers 59, The Vienna Institute for International Economic Studies, wiiw.
  4. Elisabeth Christen & Joseph Francois & Bernard Hoekman, 2012. "CGE modeling of market access in services," Working Papers 2012-13, Faculty of Economics and Statistics, University of Innsbruck.
  5. Elisabeth Christen & Joseph Francois, 2010. "Modes of Delivery in Services," Economics working papers 2010-08, Department of Economics, Johannes Kepler University Linz, Austria.
  6. Ranjan Dash & P. Parida, 2013. "FDI, services trade and economic growth in India: empirical evidence on causal links," Empirical Economics, Springer, Springer, vol. 45(1), pages 217-238, August.
  7. Stefano Federico & Enrico Tosti, 2012. "Exporters and importers of services: firm-level evidence on Italy," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 877, Bank of Italy, Economic Research and International Relations Area.

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