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TRADE THROUGH FDI: investing in services

Author

Listed:
  • Carmen Fillat-Castej—n

    () (University of Zaragoza (Spain))

  • Joseph Francois

    () (Johannes Kepler University (Linz))

  • Julia Woerz

    () (Austrian National Bank)

Abstract

The type of relationship between different modes of trading services across international borders is of great interest, not only for the academic literature but also for the formulation trade liberalization offers under the GATS. Even more than for trade in goods, it is thus important to know whether cross-border trade and trade through commercial presence abroad act as complements or substitutes in services. The most commonly used analytical tool in the empirical analysis of this question is the gravity model of trade. This paper offers a consistent theoretical foundation for the application of the gravity model to services and to commercial presence, using a composite demand model with offers testable hypothesis about the complementary or substitutive relationship between different modes of supply. It further links the results to policy variables like market regulations which may act directly or implicitly as barriers to trade. Our empirical test for the sample of OECD countries over the decade 1994- 2004 yields robust complementary effects in the short-run, which is reinforced in the long-run by an increased potential for cross-border imports based on previous FDI inflows. A detailed analysis by individual service sectors highlights business, communication and financial services as showing the largest potential for cross-border trade when market regulations are reduced and when commercial presence increases.

Suggested Citation

  • Carmen Fillat-Castej—n & Joseph Francois & Julia Woerz, 2008. "TRADE THROUGH FDI: investing in services," IIDE Discussion Papers 20080502, Institue for International and Development Economics.
  • Handle: RePEc:lnz:wpaper:20080502
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    References listed on IDEAS

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    Cited by:

    1. Arjan Lejour & Peter Smith, 2008. "International Trade in Services—Editorial Introduction," Journal of Industry, Competition and Trade, Springer, vol. 8(3), pages 169-180, December.
    2. Matthieu Crozet & Emmanuel Milet & Daniel Mirza, 2013. "The Discriminatory Effect of Domestic Regulations on International Trade in Services: Evidence from Firm-Level Data," Documents de travail du Centre d'Economie de la Sorbonne 13019, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    3. Erik Marel & Ben Shepherd, 2013. "Services Trade, Regulation and Regional Integration: Evidence from Sectoral Data," The World Economy, Wiley Blackwell, vol. 36(11), pages 1393-1405, November.
    4. Raúl Serrano & Vicente Pinilla, 2014. "New directions of trade for the agri-food industry: a disaggregated approach for different income countries, 1963–2000," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), pages 1-22.
    5. Jorge González, 2015. "Estimating income elasticities of leisure activities using cross-sectional categorized data," Documentos de Trabajo dt2015-02, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
    6. van der Marel, Erik, 2011. "Determinants of comparative advantage in services," LSE Research Online Documents on Economics 38993, London School of Economics and Political Science, LSE Library.
    7. Claudiu Tiberiu Albulescu & Daniel Goyeau, 2016. "The interaction between trade and FDI: the CEE countries experience," Papers 1609.02334, arXiv.org.
    8. Gros, Daniel & Alcidi, Cinzia, 2014. "The Global Economy in 2030: Trends and Strategies for Europe," CEPS Papers 9142, Centre for European Policy Studies.
    9. Erik der Marel & Sébastien Miroudot, 2014. "The economics and political economy of going beyond the GATS," The Review of International Organizations, Springer, vol. 9(2), pages 205-239, June.
    10. Pelkmans, Jacques & Lejour, Arjan & Schrefler, Lorna & Mustilli, Federica & Timini, Jacopo, 2014. "The Impact of TTIP: The underlying economic model and comparisons," CEPS Papers 9710, Centre for European Policy Studies.
    11. M. T. Aparicio & I. Villanúa, 2012. "Selection criteria for overlapping binary Models," Documentos de Trabajo dt2012-01, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
    12. Joseph F. Francois & Olga Pindyuk & Julia Woerz, 2008. "Trade Effects of Services Trade Liberalization in the EU," FIW Research Reports series I-004, FIW.
    13. Raúl Serrano & Isabel Acero-Fraile & Natalia Dejo-Oricain, 2017. "Collaborative networks and export intensity in family firms: a quantile regression approach," Documentos de Trabajo dt2017-04, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.

    More about this item

    Keywords

    FDI; imports; services; panel data; substitution and complementary effects;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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