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Trade in Services: Does Gravity Hold? A Gravity Model Approach to Estimating Barriers to Services Trade

  • Keith Walsh

This paper assesses the determinants of trade in services using a gravity model, with particular attention given to the role of barriers to services trade. Initially, the application of the gravity equation to services trade is examined. A variety of econometric estimators are tested and the Hausman-Taylor model is found to be the best estimator. The gravity model fits services trade flows in a similar manner to trade in goods. Wealth of countries and a common language are the most important determinants of services trade, distance is generally found to be insignificant. A variable measuring barriers to services trade is introduced into the gravity equation. Although the variable is only found to be weakly significant, a quantified set of tariff equivalents of those barriers is estimated.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp183.

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Date of creation: 16 Nov 2006
Date of revision:
Handle: RePEc:iis:dispap:iiisdp183
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