Services Trade, Regulation and Regional Integration: Evidence from Sectoral Data

Abstract

AbstractWe use new World Bank Services Trade Restrictiveness Indices (STRIs) to measure the impact of regulation on cross‐border services trade at the sectoral level. We find that policy barriers as measured by the overall STRI for each sector have a negative and significant effect on total services trade, as well as trade in business and financial services. The effect in other sectors is not statistically significant. However, disaggregating the policy data by mode produces stronger results: policy restrictiveness negatively impacts trade in all sectors except wholesale and retail trade. There is thus considerable evidence of cross‐sectoral heterogeneity in the impact of regulations. In addition, we find evidence of cross‐modal substitution in total services trade, but complementarity in business, financial and insurance services. Finally, we find that regional trade agreements tend to promote trade overall and in business and financial services; however, the effect seems to be primarily driven by the impact of the European Union.