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Trade in Services: Cross-Border Trade vs. Commercial Presence. Evidence of Complementarity

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  • Carolina Lennon

Abstract

This paper investigates empirically the relationship between trade and FDI in services. Using bilateral data on US foreign affiliates' sales and trade as well as data on barriers to FDI, the relationship is investigated using different panel techniques, including fixed effects and pseudo-maximum-likelihood techniques. As a first step, bilateral exports are explained by foreign affiliates' sales. Then, in order to control for endogeneity, a cross-price elasticity approach is used, in which exports are explained by the cost of investing abroad. The paper additionally investigates whether the relationship in services differs from that in goods, whether it depends on the motivations for FDI and varies across services. The main findings indicate a robust complementary relationship between trade and FDI in services, which is higher than that found in the goods case and mainly related to the horizontal type of FDI as well as to 'other private services'.

Suggested Citation

  • Carolina Lennon, 2009. "Trade in Services: Cross-Border Trade vs. Commercial Presence. Evidence of Complementarity," wiiw Working Papers 59, The Vienna Institute for International Economic Studies, wiiw.
  • Handle: RePEc:wii:wpaper:59
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    References listed on IDEAS

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    Cited by:

    1. Markus Kelle & Jörn Kleinert & Horst Raff & Farid Toubal, 2013. "Cross-border and Foreign Affiliate Sales of Services: Evidence from German Microdata," The World Economy, Wiley Blackwell, vol. 36(11), pages 1373-1392, November.
    2. 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.
    3. Joseph Francois & Bernard Hoekman, 2010. "Services Trade and Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 642-692, September.
    4. Markus Kelle & Jörn Kleinert, 2010. "German Firms in Service Trade," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 56(1), pages 51-72.
    5. Broussolle Damien, 2012. "A Note on the Links Between Manufacturing, Goods and Services Exports," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 14(Special N), pages 600-620, November.
    6. Ranjan Dash & P. Parida, 2013. "FDI, services trade and economic growth in India: empirical evidence on causal links," Empirical Economics, Springer, vol. 45(1), pages 217-238, August.

    More about this item

    Keywords

    international trade in services; modes of supply; FDI;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L80 - Industrial Organization - - Industry Studies: Services - - - General

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