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Cross-Border Trade and FDI in Services

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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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Bibliographic Info

Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2008-12.

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Length: 50 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:jku:econwp:2008_12

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Keywords: FDI; imports; services; panel data; substitution and complementary effects.;

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Cited by:
  1. Ranjan Dash & P. Parida, 2013. "FDI, services trade and economic growth in India: empirical evidence on causal links," Empirical Economics, Springer, vol. 45(1), pages 217-238, August.
  2. Christen, Elisabeth & Francois, Joseph & Hoekman, Bernard, 2012. "CGE modeling of market access in services," Policy Research Working Paper Series 6106, The World Bank.
  3. 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.
  4. Christen, Elisabeth & Francois, Joseph, 2010. "Modes of Delivery in Services," CEPR Discussion Papers 7912, C.E.P.R. Discussion Papers.
  5. 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.
  6. Joseph F. Francois & Bernard Hoekman, 2009. "Services Trade and Policy," Economics working papers 2009-03, Department of Economics, Johannes Kepler University Linz, Austria.
  7. Christen, Elisabeth & Francois, Joseph & Hoekman, Bernard, 2013. "Computable General Equilibrium Modeling of Market Access in Services," Handbook of Computable General Equilibrium Modeling, Elsevier.

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