Services trade and the choice of online versus in-person delivery

Trade in services is unique from goods trade in that the trade cost associated with services exports depends on whether the service is delivered in-person (via travel of producer or consumer) or remotely (via the internet). Building on the trade-in-task framework of Grossman and Rossi-Hansberg (2008), this paper develops a task-based model of services trade that explains choice of delivering intermediate services tasks to customers in foreign markets either in-person or over the internet. To test the predictions of the empirical model, I isolate average trade costs for 23 U.S. services sectors, and consider the contribution of internet technology, travel costs, and the share of employees in each sector in occupations that can only be performed in-person to total trade costs. I find that U.S. services exporters with a higher concentration of in-person only employees face significantly higher trade costs than those with employees more concentrated in occupations that can be performed online, particularly during the COVID-19 pandemic and for professional services sectors.