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Service Trade Liberalization as a Handmaiden of Competitiveness in Manufacturing: An Industrialized or Developing Country Issue?

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  • Rolf J. Langhammer

Abstract

This paper discusses the issue whether developing countries forego chances in world manufactured markets by protecting intermediate services against market entry of new suppliers. By scanning the empirical literature on effective rates of protection (ERP), the evidence is supportive. Yet, it seems more the indirect effect via expanding the service sector in total through liberalization and deregulation than the direct effect of lowering ERP in intermediate service industries for downstream manufacturing industries which is relevant. Developed countries on the other hand enjoy a much lower level of protection in important intermediate services like banking and telecom and thus these industries can be instrumental to help downstream manufacturing industries in adjustment and restructuring. It is argued that especially in the EU competition in intermediate services will further rise due to various EU-policy rooted factors. As a result, protection rates of services in individual EU countries will converge. This paper presents a theoretical model of the labor market in which these effects can be analyzed. We then calibrate the model with respect to the German labor market to shed light on the relative strengths of these effects and thereby assess the degree to which low-wage subsidies encourage or discourage employment

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File URL: https://www.ifw-members.ifw-kiel.de/publications/service-trade-liberalization-as-a-handmaiden-of-competitiveness-in-manufacturing-an-industrialized-or-developing-country-issue-1/kap1293.pdf
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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1293.

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Length: 26 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:kie:kieliw:1293

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Keywords: Trade Liberalization; Services; Effective Rates of Protection;

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References

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  1. Hoekman, Bernard & Mattoo, Aaditya, 2006. "Services, Economic Development and the Doha Round: Exploiting the Comparative Advantage of the WTO," CEPR Discussion Papers 5628, C.E.P.R. Discussion Papers.
  2. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
  3. Patrick A. Messerlin, 2001. "Measuring the Costs of Protection in Europe: European Commercial Policy in the 2000s," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 102, July.
  4. James Markusen & Thomas Rutherford & David Tarr, 2005. "Trade and direct investment in producer services and the domestic market for expertise," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 758-777, August.
  5. Philippa Dee, 2005. "East Asian Economic Integration and its Impact on Future Growth," Asia Pacific Economic Papers, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University 350, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
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Cited by:
  1. Hoekman, Bernard & Mattoo, Aaditya, 2008. "Services trade and growth," Policy Research Working Paper Series 4461, The World Bank.
  2. Koopmann, Georg & Straubhaar, Thomas, 2008. "Zur Internationalisierung des Dienstleistungssektors," HWWI Research Papers 2-13, Hamburg Institute of International Economics (HWWI).

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