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

In: Trade Policies for Development and Transition

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  • 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 he 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.

Suggested Citation

  • James Markusen & Thomas F. Rutherford & David Tarr, 2017. "Trade and direct investment in producer services and the domestic market for expertise," World Scientific Book Chapters, in: Trade Policies for Development and Transition, chapter 19, pages 439-458, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813108448_0019
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    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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..
    6. 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.
    7. 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.
    8. 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.
    9. 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.
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    More about this item

    Keywords

    International Trade Policy; Developing Countries; Transition Countries; Growth; Poverty; Environment; Multilateral; Adjustment Costs; Autos and Steel;
    All these keywords.

    JEL classification:

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

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