Working Paper: NBER ID: w19759
Authors: Antoine Gervais; J. Bradford Jensen
Abstract: In this paper, we use a unique dataset on the distribution of output and demand across regions of the United States to estimate trade costs for 969 service and manufacturing industries. Our estimation method is a natural extension of the gravity model of trade and identifies trade costs in the absence of trade data. The estimated trade costs are higher on average for service industries, but there is considerable variation across industries within sectors. Using the trade cost estimates, we classify industries into tradable and non-tradable categories. We find that accounting for tradable service industries nearly doubles the international exposure of the US economy, tradable services value added is unevenly distributed across geographical regions, labor productivity and wages are higher on average for tradable industries, and potential welfare gains from trade liberalization in the service sector are sizable.
Keywords: Tradability; Services; Trade Costs; Gravity Model
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased trade costs (F19) | Higher fraction of local consumption satisfied by local production (F61) |
| Higher trade costs (F12) | Lower tradability of services (F19) |
| Recognizing tradable service industries (L80) | Doubling international exposure of the U.S. economy (F69) |
| Tradable service industries (L89) | Higher labor productivity and wages (J39) |
| Reducing trade costs (F12) | Enhanced economic welfare (D69) |