Working Paper: CEPR ID: DP9051
Authors: Peter Egger; Mario Larch; Kevin E. Staub
Abstract: The large reduction in tariff rates worldwide under several rounds of the GATT is commonly credited with being one of the most notable economic policy accomplishments since World War II. However, the remarkable progress towards free trade of goods is unparalleled in trade with services where liberalization agreements are much harder to achieve and cross-border transactions are impeded by far tighter barriers than for the exchange of goods. In any case, the question as to how trade policy affects services trade is complex for various reasons. First, services transactions are much harder to measure than goods transactions and acceptable data on service trade have only recently become available, mostly for trade of OECD countries. Second, neither production nor trade of goods and services are independent; often they are even inseparable. Thus, achievements towards liberalizing cross-border trade of goods should have an impact on services and, by the same token, the lack of liberalization of services trade should be responsible for there being less goods trade than possible. We provide a general equilibrium comparative static estimate of the trade and welfare effects of trade policy measures towards goods and services trade.
Keywords: goods trade; gravity equation; services trade; structural estimation
JEL Codes: F10; F12; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased liberalization (F69) | higher demand for services (J23) |
| increased liberalization (F69) | boost labor demand in services sector (J23) |
| increased liberalization (F69) | reduce labor demand in goods sector (J23) |
| preferential liberalization of many country pairs simultaneously (F13) | complex mix of trade creation and diversion effects (F12) |
| preferential goods and services trade liberalization in 2006 (F13) | welfare effects of approximately 0.74% of GDP (D69) |
| preferential goods trade liberalization in 2006 (F13) | welfare effects of about 0.41% of GDP (D69) |
| preferential services trade liberalization in 2006 (F13) | welfare effects of about 0.27% of GDP (D69) |