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A Model of Trade Liberalization in Services

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  • Clement Yuk Pang Wong
  • Jinhui Wu
  • Anming Zhang

Abstract

This paper develops an intra-industry service trade model taking into account important features of services. We find that service trade liberalization between identical economies is welfare enhancing when the pre-trade domestic market liberalization is limited. This holds regardless of the degree of trade liberalization and of the mode of supply. However, if the pre-trade environment is characterized by a free-entry equilibrium, then service trade liberalization is not necessarily welfare improving. It is welfare enhancing if the trade liberalization is full and the mode of supply is cross-border. The gain from trade in our model comes from the improvement in service quality-better matching between consumers' ideal varieties and firms' product specificity. The implications for the mode of supply in service trade are also explored. Copyright © 2006 The Authors; Journal compilation © Blackwell Publishing Ltd. 2006.

Suggested Citation

  • Clement Yuk Pang Wong & Jinhui Wu & Anming Zhang, 2006. "A Model of Trade Liberalization in Services," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 148-168, February.
  • Handle: RePEc:bla:reviec:v:14:y:2006:i:1:p:148-168
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    Cited by:

    1. Buch, Claudia M. & Koch, Cathérine T. & Koetter, Michael, 2011. "Size, productivity, and international banking," Journal of International Economics, Elsevier, vol. 85(2), pages 329-334.
    2. Ishikawa, Jota & Morita, Hodaka & Mukunoki, Hiroshi, 2010. "FDI in post-production services and product market competition," Journal of International Economics, Elsevier, vol. 82(1), pages 73-84, September.
    3. 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.
    4. Jota Ishikawa & Hodaka Morita & Hiroshi Mukunoki, 2016. "Trade liberalization and aftermarket services for imports," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(4), pages 719-764, October.

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