Cross-Border Trade and FDI in Services

52 Pages Posted: 18 Dec 2008

See all articles by Carmen Fillat Castejon

Carmen Fillat Castejon

University of Zaragoza

Joseph F. Francois

University of Bern - Department of Economics; Centre for Economic Policy Research (CEPR); Vienna Institute of International Economic Studies (WIIW); University of Adelaide - School of Economics

Julia Woerz

Vienna Institute of International Economic Studies (WIIW); Tinbergen Institute Rotterdam (TIR)

Date Written: December 2008

Abstract

Working with a panel dataset of of OECD countries over the decade 1994-2004, we examine linkages between cross-border trade and FDI in the service sectors. We first develop a consistent analytical framework for the application of the gravity model jointly to services trade and commercial presence (i.e. FDI), using a composite model of delivery that offers testable hypotheses about the roles of different modes of services supply as complements or substitutes. We further link our estimates to policy variables measuring market regulations that may act directly or implicitly as barriers to trade. We find robust evidence of complementary effects in the short-run, which is reinforced in the long run by an increased potential for cross-border imports based on previous FDI inflows. A detailed analysis by individual service sectors highlights business, communication and financial services as showing the largest potential for cross-border trade when market regulations are reduced and when commercial presence increases.

Keywords: FDI, services, services trade, trade and FDI substitution and complementarity

JEL Classification: F10, F14, F21

Suggested Citation

Fillat Castejon, Carmen and Francois, Joseph F and Woerz, Julia, Cross-Border Trade and FDI in Services (December 2008). CEPR Discussion Paper No. DP7074. Available at SSRN: https://ssrn.com/abstract=1311197

Carmen Fillat Castejon

University of Zaragoza ( email )

Gran Via 2
Zaragoza, 50005
Spain

Joseph F Francois (Contact Author)

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, CH-3001
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Vienna Institute of International Economic Studies (WIIW) ( email )

Oppolzergasse 6
A-1010 Vienna
Austria

University of Adelaide - School of Economics ( email )

Adelaide SA, 5005
Australia
+61 8 8303 5540 (Phone)
+61 8 8223 1460 (Fax)

Julia Woerz

Vienna Institute of International Economic Studies (WIIW) ( email )

A-1010 Vienna
Austria
+43 1 5336610 24 (Phone)
+43 1 5336610 50 (Fax)

HOME PAGE: http://www.wiiw.ac.at/e/staff_woerz.html

Tinbergen Institute Rotterdam (TIR)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

HOME PAGE: http://www.tinbergen.nl/home.html

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