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Modes of Delivery in Services

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  • Christen, Elisabeth
  • Francois, Joseph

Abstract

We develop a new analytical framework for both cross-border services trade and services trade through foreign affiliates, based on heterogeneous firms operating under oligopoly. This leads to direct predictions about choice of services delivery (mode of delivery) at the firm level, and about the pattern of bilateral trade at the industry level. We examine the industry-level predictions, working with a panel of U.S. data. Unlike the recent literature that works with FDI as a proxy for affiliate services sales, we work directly with data on bilateral U.S. trade through affiliates. These data feature more sector detail than in the recent literature. We also directly compare observed patterns of services trade and affiliate sales with the corresponding indicators of patterns of cross-border and affiliate sales for manufacturing sectors. In contrast to mixed results in manufac- turing, in services overseas multinational activities consistently increase relative to direct exports the further away are host countries. Language and the presence of manufacturing FDI are also important. The impact of factors like corporate tax rates and relative stocks of human capital on modes of service delivery varies across sectors. The evidence on interdependence across modes and the importance of local affiliates implies that the impact of policy in any one mode is likely to depend on the mix of domestic regulation and policy across all modes of supply.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7912.

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Date of creation: Jul 2010
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Handle: RePEc:cpr:ceprdp:7912

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Keywords: FDI; Foreign Affiliate Sales; GATS; International Trade in Services; Modes of Supply;

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References

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  1. Joseph Francois & Bernard Hoekman, 2010. "Services Trade and Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 642-92, September.
  2. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, December.
  3. Baldwin, Richard & Robert-Nicoud, Frédéric, 2007. "Offshoring: General Equilibrium Effects on Wages, Production and Trade," CEPR Discussion Papers 6218, C.E.P.R. Discussion Papers.
  4. S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc.
  5. James R. Markusen & Anthony J. Venables & Denise Eby Konan & Kevin H. Zhang, 1996. "A Unified Treatment of Horizontal Direct Investment, Vertical Direct Investment, and the Pattern of Trade in Goods and Services," NBER Working Papers 5696, National Bureau of Economic Research, Inc.
  6. Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-32, Nov.-Dec..
  7. Joseph Francois & Julia Woerz, 2007. "Producer Services, Manufacturing Linkages, and Trade," Tinbergen Institute Discussion Papers 07-045/2, Tinbergen Institute.
  8. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
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  11. Carmen Fillat-Castejon & Joseph Francis Francois & Julia Maria Woerz, 2008. "Cross-Border Trade and FDI in Services," Economics working papers 2008-12, Department of Economics, Johannes Kepler University Linz, Austria.
  12. Bruce A. Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," NBER Working Papers 11299, National Bureau of Economic Research, Inc.
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  14. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
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  17. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
  18. Magnus Blomstrom & Ari Kokko, 2003. "The Economics of Foreign Direct Investment Incentives," NBER Working Papers 9489, National Bureau of Economic Research, Inc.
  19. Joseph Francois & Ian Wooton, 2010. "Market Structure and Market Access," The World Economy, Wiley Blackwell, vol. 33(7), pages 873-893, 07.
  20. James R. Markusen & Bridget Strand, 2009. "Adapting the Knowledge-capital Model of the Multinational Enterprise to Trade and Investment in Business Services," The World Economy, Wiley Blackwell, vol. 32(1), pages 6-29, 01.
  21. Aleksandra Riedl, 2008. "Contrasting the dynamic patterns of manufacturing and service FDI: Evidence from transition economies," Department of Economics Working Papers wuwp117, Vienna University of Economics, Department of Economics.
  22. Ivar Kolstad & Espen Villanger, 2004. "Determinants of foreign direct investment in services," CMI Working Papers WP 2004: 2, CMI (Chr. Michelsen Institute), Bergen, Norway.
  23. Fukunari Kimura & Hyun-Hoon Lee, 2006. "The Gravity Equation in International Trade in Services," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(1), pages 92-121, April.
  24. Horstmann, Ignatius J. & Markusen, James R., 1992. "Endogenous market structures in international trade (natura facit saltum)," Journal of International Economics, Elsevier, vol. 32(1-2), pages 109-129, February.
  25. Feenstra, Robert C, 2002. "Border Effects and the Gravity Equation: Consistent Methods for Estimation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 491-506, December.
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Citations

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Cited by:
  1. Joseph F. Francois & Bernard Hoekman, 2009. "Services Trade and Policy," Economics working papers 2009-03, Department of Economics, Johannes Kepler University Linz, Austria.
  2. Elisabeth Christen, 2013. "Time Zones Matter: The Impact of Distance and Time Zones on Services Trade," WIFO Working Papers 445, WIFO.
  3. repec:wip:wpaper:3 is not listed on IDEAS
  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. Markus Kelle & Jörn Kleinert & Horst Raff & Farid Toubal, 2012. "Cross-Border and Foreign-Affiliate Sales of Services: Evidence from German Micro-Data," Development Working Papers 335, Centro Studi Luca d\'Agliano, University of Milano, revised 16 Jul 2012.
  6. Francois, Joseph & Manchin, Miriam & Tomberger, Patrick, 2013. "Services linkages and the value added content of trade," Policy Research Working Paper Series 6432, The World Bank.
  7. Marine George, 2013. "Does cross-border regulation really influence cross-border trade? Evidence from the Services Trade Restrictions Index," Post-Print dumas-00909960, HAL.
  8. Stefano Federico & Enrico Tosti, 2012. "Exporters and importers of services: firm-level evidence on Italy," Temi di discussione (Economic working papers) 877, Bank of Italy, Economic Research and International Relations Area.
  9. Martijn J. Burger & Mark Thissen & Frank G. van Oort & Dario Diodato, 2014. "The Magnitude and Distance Decay of Trade in Goods and Services: New Evidence for European Countries," Tinbergen Institute Discussion Papers 14-031/VII, Tinbergen Institute.
  10. Suma Athreye & Yong Yang, 2011. "Disembodied Knowledge Flows in the World Economy," WIPO Economic Research Working Papers 03, World Intellectual Property Organization - Economics and Statistics Division, revised Dec 2011.

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