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Cross-Border Trade and FDI in Services

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Author Info
Fillat Castejón, Carmen
Francois, Joseph
Woerz, Julia

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

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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