Abstract

AbstractTrade in services is often hampered by domestic administrative barriers, even when countries are members of the same regional trade agreement. We exploit a large reform in the European Union (the EU Service Directive) aimed at reducing such administrative hurdles in cross‐border service provision to estimate its effects on service trade. We employ a triple‐difference strategy and a Poisson pseudo‐maximum‐likelihood panel approach to estimate gravity equations with multiple fixed effects. On average, the reform increased intra‐EU trade in targeted services between a lower bound of 29% and an upper bound of 67%, translating into an overall welfare increase between 0.39% and 1.32% for the member states. This effect of the reform on service trade is corroborated by several robustness and sensitivity checks. Besides the cross‐border trade creation effect, we show that there is trade diversion at the cost of domestic flows. Furthermore, a disaggregated analysis reveals significant differences between countries and service sectors.

Highlights

  • International trade is hampered by a variety of administrative barriers and even when countries form regional trade agreements (RTA) these hurdles seem to persist (Hornok and Koren, 2015)

  • Several studies show that a reduction of administrative barriers increases trade volumes (Engman, 2005), which motivated the members of the World Trade Organization (WTO) to sign the Trade Facilitation Agreement (TFA; WTO, 2014)

  • This effect is significant in statistical and in economic terms when compared to the parameter estimates of European Union (EU)-membership and RTAs

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Summary

Introduction

International trade is hampered by a variety of administrative barriers and even when countries form regional trade agreements (RTA) these hurdles seem to persist (Hornok and Koren, 2015). Ceglowski (2006) observes a positive link between RTA and trade in services She argues that the effect might not result directly from the RTA but from the strong linkages between goods and services trade. Egger et al (2012) show that services respond stronger to reductions of trade barriers than goods, because the domestic service sectors are bigger and trade costs are larger They observe strong positive effects on trade in services of RTAs. We observe that the majority of MS was able to increase their exports due to the reform This holds for old and new MS alike, but the magnitude of trade effects varies significantly over the economies.

The Service Directive
Previous Literature
Article 2 of the SD lists the excluded services
Data and Empirical Strategy
Gravity Equation for Service Trade
EU-Average
Heterogeneity in the Implementation Progress
Country-specific Effects
Sector-specific Effects
Conclusion
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