IDEAS home Printed from https://ideas.repec.org/a/wly/canjec/v38y2005i3p758-777.html
   My bibliography  Save this article

Trade and direct investment in producer services and the domestic market for expertise

Author

Listed:
  • James Markusen
  • Thomas F. Rutherford
  • David Tarr

Abstract

. Foreign producer services can provide substantial benefits for domestic firms. We build on earlier monopolistic‐competition models of intermediate producer services in this paper. Results show that: (1) while foreign services are partial‐equilibrium substitutes for domestic skilled labour, they may be general‐equilibrium complements, (2) service trade can provide crucial missing inputs that reverse comparative advantage in final goods, (3) the ‘optimal’ tax on imported services may be a subsidy, and (4) in our dynamic formulation, there may be earnings losses for immobile workers along a transition path that suggest potentially important equity consequences of reform. JEL classification: F12, F16, F23 Commerce international et investissement direct dans les services de production et le marché intérieur de l’expertise. Les services de production en provenance de l’étranger peuvent engendrer des avantages substantiels pour les entreprises domestiques. Dans ce mémoire, les auteurs construisent sur la base de certains modèles antérieurs de concurrence monopolistique de services de production intermédiaires. Les résultats montrent que: (1) alors que les services de l’étranger sont des substituts pour le travail domestique spécialisé en équilibre partiel, en équilibre général, ils peuvent être des compléments; (2) le commerce de services peut fournir des intrants cruciaux qui manquent et ce faisant renverser les avantages comparatifs dans les produits finaux; (3) la fiscalité optimale imposée sur les services importés peut être une subvention; et (4) dans la formulation dynamique du modèle, il peut y avoir perte de revenus pour les travailleurs immobiles le long du sentier de transition, ce qui suggère qu’il peut y avoir des conséquences importantes au plan de l’équité associées à certaines réformes.

Suggested Citation

  • James Markusen & Thomas F. Rutherford & David Tarr, 2005. "Trade and direct investment in producer services and the domestic market for expertise," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(3), pages 758-777, August.
  • Handle: RePEc:wly:canjec:v:38:y:2005:i:3:p:758-777
    DOI: 10.1111/j.0008-4085.2005.00301.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.0008-4085.2005.00301.x
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Markusen, James R., 1990. "Derationalizing tariffs with specialized intermediate inputs and differentiated final goods," Journal of International Economics, Elsevier, vol. 28(3-4), pages 375-383, May.
    2. Rutherford, Thomas F., 1995. "Extension of GAMS for complementarity problems arising in applied economic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1299-1324, November.
    3. Joseph F. Francois, 1990. "Trade in Producer Services and Returns Due to Specialization under Monopolistic Competition," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 109-124, February.
    4. Francois, Joseph F, 1990. "Producer Services, Scale, and the Division of Labor," Oxford Economic Papers, Oxford University Press, vol. 42(4), pages 715-729, October.
    5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    6. Rutherford, Thomas F, 1999. "Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: An Overview of the Modeling Framework and Syntax," Computational Economics, Springer;Society for Computational Economics, vol. 14(1-2), pages 1-46, October.
    7. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December.
    8. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
    9. Thomas F. Rutherford & David G. Tarr, 2017. "Trade liberalization, product variety and growth in a small open economy: a quantitative assessment," World Scientific Book Chapters, in: Trade Policies for Development and Transition, chapter 17, pages 389-414, World Scientific Publishing Co. Pte. Ltd..
    10. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tarr, David G., 2013. "Putting Services and Foreign Direct Investment with Endogenous Productivity Effects in Computable General Equilibrium Models," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 303-377, Elsevier.
    2. James R. Markusen & Thomas F. Rutherford & David Tarr, 2000. "Foreign Direct Investments in Services and the Domestic Market for Expertise," NBER Working Papers 7700, National Bureau of Economic Research, Inc.
    3. Jesper Jensen & Thomas Rutherford & David Tarr, 2014. "The Impact of Liberalizing Barriers to Foreign Direct Investment in Services: The Case of Russian Accession to the World Trade Organization," World Scientific Book Chapters, in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 6, pages 125-149, World Scientific Publishing Co. Pte. Ltd..
    4. Joseph Francois & Douglas R. Nelson, 2000. "Victims of Progress: Economic Integration, Specialization, and Wages for Unskilled Labor," Tinbergen Institute Discussion Papers 00-065/2, Tinbergen Institute.
    5. Michael Burda & Barbara Dluhosch, 2000. "Fragmentation, Globalization and Labor Markets," CESifo Working Paper Series 352, CESifo.
    6. Michael C. Burda & Barbara Dluhosch, 2002. "Cost Competition, Fragmentation, and Globalization," Review of International Economics, Wiley Blackwell, vol. 10(3), pages 424-441, August.
    7. Markusen, James R. & Strand, Bridget, 2007. "Trade in Business Services in General Equilibrium," CEPR Discussion Papers 6080, C.E.P.R. Discussion Papers.
    8. Joseph Francois & Bernard Hoekman, 2010. "Services Trade and Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 642-692, September.
    9. Larch, Mario, 2007. "The multinationalization of the transport sector," Journal of Policy Modeling, Elsevier, vol. 29(3), pages 397-416.
    10. Jensen, Jesper & Rutherford, Thomas & Tarr, David, 2005. "Telecommunications reform within Russia's accession to the World Trade Organization," Policy Research Working Paper Series 3501, The World Bank.
    11. Karolina Ekholm & Katariina Hakkala, 2007. "Location of R&D and High-Tech Production by Vertically Integrated Multinationals," Economic Journal, Royal Economic Society, vol. 117(518), pages 512-543, March.
    12. Joseph F. Francois & Douglas Nelson, 2002. "A Geometry Of Specialisation," Economic Journal, Royal Economic Society, vol. 112(481), pages 649-678, July.
    13. Fernandes, Ana M. & Paunov, Caroline, 2012. "Foreign direct investment in services and manufacturing productivity: Evidence for Chile," Journal of Development Economics, Elsevier, vol. 97(2), pages 305-321.
    14. James R. Markusen & Bridget Strand, 2009. "Adapting the Knowledge‐capital Model of the Multinational Enterprise to Trade and Investment in Business Services," The World Economy, Wiley Blackwell, vol. 32(1), pages 6-29, January.
    15. Tarr, David, 2012. "Impact of services liberalization on industry productivity, exports and development : six empirical studies in the transition countries," Policy Research Working Paper Series 6023, The World Bank.
    16. Rutherford, Thomas & Tarr, David, 2006. "Regional impacts of Russia's accession to the World Trade Organization," Policy Research Working Paper Series 4015, The World Bank.
    17. Light Miles K., 2004. "FTAA and Service Liberalization in Colombia," Revista Desarrollo y Sociedad, Universidad de los Andes - CEDE, April.
    18. Fernandes, Ana M. & Paunov, Caroline, 2008. "Foreign direct investment in services and manufacturing productivity growth: evidence for Chile," Policy Research Working Paper Series 4730, The World Bank.
    19. World Bank, 2016. "Assessing the Impact of WTO Accession on Belarus," World Bank Other Operational Studies 24698, The World Bank.
    20. van Marrewijk, Charles & Stibora, Joachim & de Vaal, Albert & Viaene, Jean-Marie, 1997. "Producer services, comparative advantage, and international trade patterns," Journal of International Economics, Elsevier, vol. 42(1-2), pages 195-220, February.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:canjec:v:38:y:2005:i:3:p:758-777. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley Content Delivery). General contact details of provider: https://doi.org/10.1111/(ISSN)1540-5982 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.