IDEAS home Printed from https://ideas.repec.org/p/wfo/wpaper/y2025i715.html
   My bibliography  Save this paper

The EU Services Directive: Untapped Potentials of Trade in Services

Author

Listed:
  • Michael Pfaffermayr
  • Yvonne Wolfmayr

Abstract

A major step towards liberalizing the EU Internal Market for services was taken in 2006 with the EU Services Directive. This study quantifies its impact on EU trade in services and real income and identifies untapped potential due to remaining administrative barriers and weak enforcement of Single Market rules. Results are based on a structural gravity model estimated at the level of industry and country-pairs over the period 1995 to 2018. A novel country-specific indicator derived from business complaints to the EU-SOLVIT mechanism, assesses the quality of service sector reforms and remaining barriers to trade in services. Empirical estimates show heterogeneous effects across industries, with strong positive effects in publishing, IT and business services, but negative effects for some industries such as in wholesale and retail trade. On average, the Services Directive increased intra-EU trade in services by 4.4 percent, but had negligible effects on real income. If reform efforts were to match those of the strongest reformers, intra-EU export potential could increase by 6.2 percent and potential real income by 0.3 percent on average.

Suggested Citation

  • Michael Pfaffermayr & Yvonne Wolfmayr, 2025. "The EU Services Directive: Untapped Potentials of Trade in Services," WIFO Working Papers 715, WIFO.
    • Handle: RePEc:wfo:wpaper:y:2025:i:715
    as

    Download full text from publisher

    File URL: https://www.wifo.ac.at/?p=437526
    File Function: abstract
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Andreas Olden & Jarle Møen, 2022. "The triple difference estimator [Semiparametric difference-in-differences estimators]," The Econometrics Journal, Royal Economic Society, vol. 25(3), pages 531-553.
    2. Lejour, Arjan & Rojas-Romagosa, Hugo & Verweij, Gerard, 2008. "Opening services markets within Europe: Modelling foreign establishments in a CGE framework," Economic Modelling, Elsevier, vol. 25(5), pages 1022-1039, September.
    3. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    4. Swati Dhingra & Hanwei Huang & Gianmarco Ottaviano & João Paulo Pessoa & Thomas Sampson & John Van Reenen, 2017. "The costs and benefits of leaving the EU: trade effects," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 32(92), pages 651-705.
    5. Milena Kern & Jörg Paetzold & Hannes Winner, 2021. "Cutting red tape for trade in services," The World Economy, Wiley Blackwell, vol. 44(10), pages 2858-2886, October.
    6. Keith Head & Thierry Mayer, 2021. "The United States of Europe: A Gravity Model Evaluation of the Four Freedoms," Journal of Economic Perspectives, American Economic Association, vol. 35(2), pages 23-48, Spring.
    7. Harald Oberhofer & Michael Pfaffermayr, 2021. "Estimating the trade and welfare effects of Brexit: A panel data structural gravity model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 338-375, February.
    8. Yvonne Wolfmayr & Michael Pfaffermayr, 2022. "The EU Services Directive: Untapped Potentials of Trade in Services," WIFO Studies, WIFO, number 69628, October.
    9. Yotov, Yoto V., 2012. "A simple solution to the distance puzzle in international trade," Economics Letters, Elsevier, vol. 117(3), pages 794-798.
    10. Larch, Mario & Wanner, Joschka & Yotov, Yoto V., 2018. "Bi- and Unilateral trade effects of joining the Euro," Economics Letters, Elsevier, vol. 171(C), pages 230-234.
    11. Javier Barbero & Manol Bengyuzov & Martin Christensen & Andrea Conte & Simone Salotti & Aleksei Trofimov, 2022. "A general equilibrium analysis of the economic impact of the post-2006 EU regulation in the services sector," JRC Working Papers on Territorial Modelling and Analysis 2022-03, Joint Research Centre.
    12. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    13. Elisabeth Christen & Joseph Francois, 2017. "Modes of Supply for US Exports of Services," The World Economy, Wiley Blackwell, vol. 40(3), pages 517-531, March.
    14. Mario Larch & Joschka Wanner & Yoto V. Yotov & Thomas Zylkin, 2019. "Currency Unions and Trade: A PPML Re‐assessment with High‐dimensional Fixed Effects," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(3), pages 487-510, June.
    15. Baldwin, Richard E. & Venables, Anthony J., 1995. "Regional economic integration," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 31, pages 1597-1644, Elsevier.
    16. Harald Oberhofer & Michael Pfaffermayr & Richard Sellner, 2021. "Revisiting time as a trade barrier: Evidence from a panel structural gravity model," Review of International Economics, Wiley Blackwell, vol. 29(5), pages 1382-1417, November.
    17. Felbermayr, Gabriel & Gröschl, Jasmin & Heiland, Inga, 2022. "Complex Europe: Quantifying the cost of disintegration," Journal of International Economics, Elsevier, vol. 138(C).
    18. Peter H. Egger & Mario Larch & Yoto V. Yotov, 2022. "Gravity Estimations with Interval Data: Revisiting the Impact of Free Trade Agreements," Economica, London School of Economics and Political Science, vol. 89(353), pages 44-61, January.
    19. Gabriel Felbermayr & Benjamin Jung, 2011. "Sorting It Out: Technical Barriers to Trade and Industry Productivity," Open Economies Review, Springer, vol. 22(1), pages 93-117, February.
    20. Egger, Peter & Larch, Mario, 2008. "Interdependent preferential trade agreement memberships: An empirical analysis," Journal of International Economics, Elsevier, vol. 76(2), pages 384-399, December.
    21. Josefa Monteagudo & Aleksander Rutkowski & Dimitri Lorenzani, 2012. "The economic impact of the Services Directive: A first assessment following implementation," European Economy - Economic Papers 2008 - 2015 456, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    22. repec:wsr:ecbook:2022:i:viii-003 is not listed on IDEAS
    23. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
    24. Bianka Dettmer, 2015. "Trade Effects of the European Union's Service Directive: Contrasting ex ante Estimates with Empirical Evidence," The World Economy, Wiley Blackwell, vol. 38(3), pages 445-478, March.
    25. Scott L. Baier & Jeffrey H. Bergstrand & Matthew W. Clance, 2015. "Heterogeneous Economic Integration Agreement Effects," CESifo Working Paper Series 5488, CESifo.
    26. Henk Kox & Arjan Lejour & Raymond Montizaan, 2004. "The free movement of services within the EU," CPB Document 69, CPB Netherlands Bureau for Economic Policy Analysis.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yvonne Wolfmayr & Michael Pfaffermayr, 2022. "The EU Services Directive: Untapped Potentials of Trade in Services," WIFO Studies, WIFO, number 69628, October.
    2. Fritz Breuss, 2022. "In Search of the "Right" Integration Effects: From Complex to Simple Modeling," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 50(3), pages 99-118, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:wsr:ecbook:2022:i:viii-003 is not listed on IDEAS
    2. Harald Oberhofer & Zhenyi Wang, 2025. "Everything You Always Wanted to Know About EU Membership Trade Effects But Were Afraid to Ask," CESifo Working Paper Series 11823, CESifo.
    3. Milena Kern & Jörg Paetzold & Hannes Winner, 2021. "Cutting red tape for trade in services," The World Economy, Wiley Blackwell, vol. 44(10), pages 2858-2886, October.
    4. Harald Oberhofer & Gerhard Streicher, 2019. "Die Handelseffekte der österreichischen EU-Mitgliedschaft 25 Jahre nach der Volksabstimmung," WIFO Studies, WIFO, number 61796, October.
    5. Yoto V. Yotov, 2024. "The evolution of structural gravity: The workhorse model of trade," Contemporary Economic Policy, Western Economic Association International, vol. 42(4), pages 578-603, October.
    6. Harald Oberhofer & Michael Pfaffermayr & Yvonne Wolfmayr, 2021. "Die Auswirkungen des Brexit auf Österreichs Wirtschaft," WIFO Studies, WIFO, number 66782, October.
    7. Harald Oberhofer & Michael Pfaffermayr & Richard Sellner, 2021. "Revisiting time as a trade barrier: Evidence from a panel structural gravity model," Review of International Economics, Wiley Blackwell, vol. 29(5), pages 1382-1417, November.
    8. Benedikt Heid & Mario Larch & Yoto V. Yotov, 2021. "Estimating the effects of non‐discriminatory trade policies within structural gravity models," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 376-409, February.
    9. Baier, Scott L. & Yotov, Yoto V. & Zylkin, Thomas, 2019. "On the widely differing effects of free trade agreements: Lessons from twenty years of trade integration," Journal of International Economics, Elsevier, vol. 116(C), pages 206-226.
    10. Heid, Benedikt & Stähler, Frank, 2024. "Structural gravity and the gains from trade under imperfect competition: Quantifying the effects of the European Single Market," Economic Modelling, Elsevier, vol. 131(C).
    11. Benjamin Jung, 2023. "The Trade Effects of the EU-South Korea Free Trade Agreement: Heterogeneity Across Time, Country Pairs, and Directions of Trade within Country Pairs," Open Economies Review, Springer, vol. 34(3), pages 617-656, July.
    12. Silviano Esteve-Pérez & Salvador Gil-Pareja & Rafael Llorca-Vivero & Jordi Paniagua, 2021. "Has the Euro paid off? A study of the trade-induced welfare effects of the EMU," Working Papers 2103, Department of Applied Economics II, Universidad de Valencia.
    13. Hinnerk Gnutzmann & Arevik Gnutzmann-Mkrtchyan & Tobias Korn, 2025. "Reversal of Economic Integration: Evidence from EU Enlargement," Working Papers 407, Leibniz Institut für Ost- und Südosteuropaforschung (Leibniz Institute for East and Southeast European Studies).
    14. Lisandra Flach & Inga Heiland & Mario Larch & Marina Steininger & Feodora A. Teti, 2024. "Quantifying the partial and general equilibrium effects of sanctions on Russia," Review of International Economics, Wiley Blackwell, vol. 32(1), pages 281-323, February.
    15. Harald Oberhofer, 2019. "Die Handelseffekte von Österreichs EU-Mitgliedschaft und des Europäischen Binnenmarktes," WIFO Monatsberichte (monthly reports), WIFO, vol. 92(12), pages 883-890, December.
    16. Swati Dhingra & Rebecca Freeman & Hanwei Huang, 2023. "The Impact of Non‐tariff Barriers on Trade and Welfare," Economica, London School of Economics and Political Science, vol. 90(357), pages 140-177, January.
    17. Harald Oberhofer & Michael Pfaffermayr, 2021. "Estimating the trade and welfare effects of Brexit: A panel data structural gravity model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 338-375, February.
    18. Julia Spornberger, 2022. "EU integration and structural gravity: A comprehensive quantification of the border effect on trade," Review of International Economics, Wiley Blackwell, vol. 30(4), pages 915-938, September.
    19. Michael Pfaffermayr, 2020. "Trade creation and trade diversion of economic integration agreements revisited: a constrained panel pseudo-maximum likelihood approach," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(4), pages 985-1024, November.
    20. Carmen Díaz-Mora & Silviano Esteve-Pérez & Salvador Gil-Pareja & Fernando Ríos-Avila, 2024. "The EMU effect on trade: A re-assessment accounting for staggered treatment adoption," Working Papers 2407, Department of Applied Economics II, Universidad de Valencia.
    21. repec:sus:susewp:1124 is not listed on IDEAS
    22. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 2, pages 15-78, Edward Elgar Publishing.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wfo:wpaper:y:2025:i:715. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Florian Mayr (email available below). General contact details of provider: https://edirc.repec.org/data/wifooat.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.