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TRADE THROUGH FDI: investing in services

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Author Info

  • Carmen Fillat-Castej—n

    () (University of Zaragoza (Spain))

  • Joseph Francois

    () (Johannes Kepler University (Linz))

  • Julia Woerz

    () (Austrian National Bank)

Abstract

The type of relationship between different modes of trading services across international borders is of great interest, not only for the academic literature but also for the formulation trade liberalization offers under the GATS. Even more than for trade in goods, it is thus important to know whether cross-border trade and trade through commercial presence abroad act as complements or substitutes in services. The most commonly used analytical tool in the empirical analysis of this question is the gravity model of trade. This paper offers a consistent theoretical foundation for the application of the gravity model to services and to commercial presence, using a composite demand model with offers testable hypothesis about the complementary or substitutive relationship between different modes of supply. It further links the results to policy variables like market regulations which may act directly or implicitly as barriers to trade. Our empirical test for the sample of OECD countries over the decade 1994- 2004 yields robust 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 Institue for International and Development Economics in its series IIDE Discussion Papers with number 20080502.

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Length: 54 pages
Date of creation: 01 May 2008
Date of revision:
Handle: RePEc:lnz:wpaper:20080502

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

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Citations

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Cited by:
  1. Arjan Lejour & Peter Smith, 2008. "International Trade in Services—Editorial Introduction," Journal of Industry, Competition and Trade, Springer, vol. 8(3), pages 169-180, December.
  2. Matthieu Crozet & Emmanuel Milet & Daniel Mirza, 2013. "The Discriminatory Effect of Domestic Regulations on International Trade in Services: Evidence from Firm-Level Data," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00801398, HAL.
  3. Matthieu Crozet & Emmanuel Milet & Daniel Mirza, 2013. "The Discriminatory Effect of Domestic Regulations on International Trade in Services: Evidence from Firm-Level Data," Documents de travail du Centre d'Economie de la Sorbonne 13019, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  4. Erik van der Marel, 2012. "Determinants of Comparative Advantage in Services," FIW Working Paper series 087, FIW.
  5. Joseph Francois & Olga Pindyuk & Julia Woerz, 2008. "Trade Effects of Services Trade Liberalization in the EU," IIDE Discussion Papers 20080801, Institue for International and Development Economics.
  6. M. T. Aparicio & I. Villanúa, 2012. "Selection criteria for overlapping binary Models," Documentos de Trabajo dt2012-01, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
  7. Van Der Marel, Erik & Shepherd, Ben, 2011. "Services trade, regulation, and regional integration: Evidence from sectoral data," MPRA Paper 34343, University Library of Munich, Germany.

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