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International Provision of Trade Services, Trade, and Fragmentation

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  • Deardorff, A.V.

Abstract

This paper examines the special role that trade liberalization in service industries can play in stimulating not only trade in services itself, but also in stimulating trade in goods. International trade in goods requires inputs from several services industries - what I call trade services, such as transportation, insurance, and finance - in order to complete and facilitate international transactions. Restriction on the ability of national service providers to provide these services across borders and within foreign countries create additional costs and barriers to international trade above those that would arise in otherwise comparable intra-national exchange. As a result, trade liberalization in services can yield benefits, by facilitating trade in goods, that are larger than one might expect from analysis of the services trade alone. This paper explores this idea using simple theoretical models to specify the relationships between services trade and goods trade. The paper also, to make the point more forcefully, notes the role of services trade in a model of international industrial fragmentation, where production processes can be separated across locations but at some cost in terms of additional service inputs.

Suggested Citation

  • Deardorff, A.V., 2000. "International Provision of Trade Services, Trade, and Fragmentation," Working Papers 463, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:463
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    References listed on IDEAS

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    1. repec:fth:michin:458 is not listed on IDEAS
    2. repec:fth:michin:460 is not listed on IDEAS
    3. Alan V. Deardorff & Robert M. Stern, 2009. "What the Public Should Know about Globalization and the World Trade Organization," World Scientific Book Chapters,in: Globalization And International Trade Policies, chapter 2, pages 19-52 World Scientific Publishing Co. Pte. Ltd..
    4. Bernard Hoekman & Carlos Braga, 1997. "Protection and Trade in Services: A Survey," Open Economies Review, Springer, pages 285-308.
    5. Deardorff, Alan V., 2001. "Fragmentation in simple trade models," The North American Journal of Economics and Finance, Elsevier, vol. 12(2), pages 121-137, July.
    6. Avinash K. Dixit & Gene M. Grossman, 1982. "Trade and Protection with Multistage Production," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 583-594.
    7. David L. Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99.
    8. Deardorff, A.V., 2000. "Financial Crisis, Trade, and Fragmentation," Working Papers 458, Research Seminar in International Economics, University of Michigan.
    9. Arndt, Sven W., 1997. "Globalization and the open economy," The North American Journal of Economics and Finance, Elsevier, vol. 8(1), pages 71-79.
    10. repec:fth:michin:422 is not listed on IDEAS
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    More about this item

    Keywords

    INTERNATIONAL TRADE ; SERVICE INDUSTRY;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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