Heterogeneous Effects of Trade in Services Barriers: Firm-Level Evidence from the EU-UK Trade and Cooperation Agreement

This paper studies the heterogeneous effects of trade in services barriers on firm-level exports, focusing on the consequences of the UK withdrawal from the European Union and the introduction of the EU–UK Trade and Cooperation Agreement (TCA). Using detailed firm-level transaction data on UK services exports combined with sectoral measures of regulatory restrictiveness, we show that UK services exports to the EU declined significantly following both the Brexit referendum and the implementation of the TCA, with substantially larger effects after regulatory barriers were formally reintroduced. The effects are highly heterogeneous across firms, following an inverted U-shaped pattern with small and large firms more negatively affected, and are particularly pronounced for foreign-owned firms using the UK as an export platform. Crucially, we show that barriers related to foreign entry are the primary drivers of the observed decline, while other regulatory dimensions play a limited role. These findings highlight the importance of firm heterogeneity and regulatory alignment in shaping services trade outcomes.