Services trade and environmental sustainability: Conceptual linkages and empirical patterns

Services trade can shape the scale of economic activities, their composition, and production techniques, all with implications for environmental sustainability. Yet, the economic literature has paid limited attention to the linkages between services trade and the environment. This paper aims to fill this gap by exploring both conceptually and empirically the role of services trade in the green transition. Country-level analysis shows that greater imports of services across a broad range of sectors – including core environmental services as well as environmentally related services such as research and development, engineering, and architecture - are associated with higher environmental performance. Robust estimates based on a sample of 49 countries and 17 manufacturing sectors over the period 2014-2018 indicate that reducing policy restrictions on imported services inputs lowers the emission intensity of downstream manufacturing. In addition, the analysis reveals that environmental policy stringency increases services imports. Overall, the paper demonstrates that services trade policy can contribute to addressing environmental challenges and that synergies with environmental policy should be considered.