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Trade in Services: Cross-Border Trade vs. Commercial Presence. Evidence of Complementarity

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  • Carolina Lennon

    (The Vienna Institute for International Economic Studies, wiiw)

Abstract

This paper investigates empirically the relationship between trade and FDI in services. Using bilateral data on US foreign affiliates' sales and trade as well as data on barriers to FDI, the relationship is investigated using different panel techniques, including fixed effects and pseudo-maximum-likelihood techniques. As a first step, bilateral exports are explained by foreign affiliates' sales. Then, in order to control for endogeneity, a cross-price elasticity approach is used, in which exports are explained by the cost of investing abroad. The paper additionally investigates whether the relationship in services differs from that in goods, whether it depends on the motivations for FDI and varies across services. The main findings indicate a robust complementary relationship between trade and FDI in services, which is higher than that found in the goods case and mainly related to the horizontal type of FDI as well as to 'other private services'.

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Bibliographic Info

Paper provided by The Vienna Institute for International Economic Studies, wiiw in its series wiiw Working Papers with number 59.

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Length: 42 pages including 14 Tables and 5 Figures
Date of creation: Nov 2009
Date of revision:
Publication status: Published as wiiw Working Paper
Handle: RePEc:wii:wpaper:59

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Keywords: international trade in services; modes of supply; FDI;

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  1. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics, Boston College Department of Economics 485, Boston College Department of Economics.
  2. Amiti, Mary & Wakelin, Katharine, 2003. "Investment liberalization and international trade," Journal of International Economics, Elsevier, Elsevier, vol. 61(1), pages 101-126, October.
  3. Anne-Celia Disdier & Keith Head, 2008. "The puzzling persistence of the distance effect on bilateral trade," Working Papers 21709, Institut National de la Recherche Agronomique, France.
  4. Head, Keith & Ries, John, 2001. "Overseas Investment and Firm Exports," Review of International Economics, Wiley Blackwell, vol. 9(1), pages 108-22, February.
  5. Gene M. Grossman & Elhanan Helpman & Adam Szeidl, 2003. "Optimal Integration Strategies for the Multinational Firm," Working Papers, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics. 142, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  6. Buch, Claudia M. & Lipponer, Alexander, 2007. "FDI versus exports: Evidence from German banks," Journal of Banking & Finance, Elsevier, Elsevier, vol. 31(3), pages 805-826, March.
  7. Langhammer, Rolf J., 2005. "The EU offer of service trade liberalization in the Doha Round : evidence of a not-yet-perfect customs union," Open Access Publications from Kiel Institute for the World Economy, Kiel Institute for the World Economy (IfW) 3509, Kiel Institute for the World Economy (IfW).
  8. Blonigen, Bruce A., 2001. "In search of substitution between foreign production and exports," Journal of International Economics, Elsevier, Elsevier, vol. 53(1), pages 81-104, February.
  9. Fillat Castejón, Carmen & Francois, Joseph & Woerz, Julia, 2008. "Cross-Border Trade and FDI in Services," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7074, C.E.P.R. Discussion Papers.
  10. Keith Head & John Ries, 2004. "Exporting and FDI as Alternative Strategies," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 20(3), pages 409-423, Autumn.
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  12. Carolina Lennon, 2008. "Trade in services and trade in goods: differences and complementarities," PSE Working Papers halshs-00586223, HAL.
  13. Donghui Li & Fariborz Moshirian & Ah-Boon Sim, 2003. "The Determinants of Intra-Industry Trade in Insurance Services," Journal of Risk & Insurance, The American Risk and Insurance Association, The American Risk and Insurance Association, vol. 70(2), pages 269-287.
  14. Caroline Freund & Diana Weinhold, 2002. "The Internet and International Trade in Services," American Economic Review, American Economic Association, American Economic Association, vol. 92(2), pages 236-240, May.
  15. Clausing, Kimberly A, 2000. "Does Multinational Activity Displace Trade?," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 38(2), pages 190-205, April.
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Cited by:
  1. Broussolle Damien, 2012. "A Note on the Links Between Manufacturing, Goods and Services Exports," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 14(Special N), pages 600-620, November.
  2. Markus Kelle & Jörn Kleinert & Horst Raff & Farid Toubal, 2012. "Cross-Border and Foreign-Affiliate Sales of Services: Evidence from German Micro-Data," CESifo Working Paper Series 3806, CESifo Group Munich.
  3. Erik van der Marel, 2011. "Determinants of comparative advantage in services," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 38993, London School of Economics and Political Science, LSE Library.
  4. Ranjan Dash & P. Parida, 2013. "FDI, services trade and economic growth in India: empirical evidence on causal links," Empirical Economics, Springer, Springer, vol. 45(1), pages 217-238, August.
  5. Kelle, Markus & Kleinert, Jörn, 2010. "German firms in service trade," Economics Working Papers 2010,03, Christian-Albrechts-University of Kiel, Department of Economics.

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