Assessment of Tariff Equivalents for Services Considering the Zero-Flows

Abstract

Measuring trade barriers in services is complex due to all the non-tariff barriers. In this paper, we rely on the quantity measures using gravity equation. In order to take into consideration a well-known issue: the presence of zero-flows in the database, we use a sample selection model. Then, we use the results of both stages of the model to derive tariff equivalents based on the distribution of the estimated residuals corrected by the trade partner probabilities. Applying this methodology on the Eurostat database, we obtain tariff equivalents for a large number of countries and for eleven services sectors. Our main conclusions are: i) the protection is not homogeneous among sectors for a country ii) the openness is not directly linked with the level of development iii) the method is not really sensitive to the specification of the regression vi) OLS estimations over estimate the commercial openness of the countries with many zero flows and vii) the elasticity of substitution affects the magnitude of the tariff equivalents but does not modify the ranking amongst the countries, which is the more reliable and the more important information.