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International Provision of Trade Services, Trade, and Fragmentation

  • Deardorff, A.V.

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.

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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 463.

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Length: 32 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:mie:wpaper:463
Contact details of provider: Postal: ANN ARBOR MICHIGAN 48109
Web page: http://fordschool.umich.edu/rsie/

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  1. Arndt, Sven W., 1997. "Globalization and the open economy," The North American Journal of Economics and Finance, Elsevier, vol. 8(1), pages 71-79.
  2. Deardorff, A.V., 2000. "Financial Crisis, Trade, and Fragmentation," Working Papers 458, Research Seminar in International Economics, University of Michigan.
  3. Dixit, Avinash K & Grossman, Gene M, 1982. "Trade and Protection with Multistage Production," Review of Economic Studies, Wiley Blackwell, vol. 49(4), pages 583-94, October.
  4. Deardorff, A.V., 1998. "Fragmentation in Simple Trade Models," Papers 98-11, Michigan - Center for Research on Economic & Social Theory.
  5. David 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.
  6. Hoekman, Bernard & Primo Braga, Carlos, 1997. "Protection and Trade in Services: A Survey," CEPR Discussion Papers 1705, C.E.P.R. Discussion Papers.
  7. Deardorff, A.V. & Stern, R.M., 2000. "What the Public Should Know about Globalization and the World Trade Organization," Working Papers 460, Research Seminar in International Economics, University of Michigan.
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