How Much do Agreements Matter for Services Trade?

Abstract

With an increasing number of Preferential Trade Agreements (PTAs) covering trade in services, we explore the impact of PTAs on services trade. To the best of our knowledge, this is the first paper in this literature that endogenizes the impact of services preferentialism in estimating the trade effect and also looks at its anticipation effects. We also add to this literature by distilling the trade effect of PTAs into that emanating from services and “goods only” agreements and further confirm complementarities between the two. Our results suggest a trade effect of 15% from having a services accord alone while the total incremental impact of a “goods only” agreement is found to be 7.6%. The services trade effect is accentuated to 59.7% once anticipation effects of services accords are included and such analysis also suggests that services agreements seem to have a significant “announcement effect.”

Keywords: Services trade, PTAs, gravity model, endogeneity, North-South

JEL Classification: F10, F13, F15