Modes of Delivery in Services

46 Pages Posted: 19 Jul 2010

See all articles by Elisabeth M. Christen

Elisabeth M. Christen

Austrian Institute of Economic Research (WIFO)

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

Date Written: July 2010

Abstract

We develop a new analytical framework for both cross-border services trade and services trade through foreign affiliates, based on heterogeneous firms operating under oligopoly. This leads to direct predictions about choice of services delivery (mode of delivery) at the firm level, and about the pattern of bilateral trade at the industry level. We examine the industry-level predictions, working with a panel of U.S. data. Unlike the recent literature that works with FDI as a proxy for affiliate services sales, we work directly with data on bilateral U.S. trade through affiliates. These data feature more sector detail than in the recent literature. We also directly compare observed patterns of services trade and affiliate sales with the corresponding indicators of patterns of cross-border and affiliate sales for manufacturing sectors. In contrast to mixed results in manufacturing, in services overseas multinational activities consistently increase relative to direct exports the further away are host countries. Language and the presence of manufacturing FDI are also important. The impact of factors like corporate tax rates and relative stocks of human capital on modes of service delivery varies across sectors. The evidence on interdependence across modes and the importance of local affiliates implies that the impact of policy in any one mode is likely to depend on the mix of domestic regulation and policy across all modes of supply.

Keywords: FDI, Foreign Affiliate Sales, GATS, International Trade in Services, Modes of Supply

JEL Classification: F10, F14, F23, L80

Suggested Citation

Christen, Elisabeth M. and Francois, Joseph F, Modes of Delivery in Services (July 2010). CEPR Discussion Paper No. DP7912. Available at SSRN: https://ssrn.com/abstract=1640988

Elisabeth M. Christen (Contact Author)

Austrian Institute of Economic Research (WIFO) ( email )

P.O. Box 91
Wien, A-1103
Austria

Joseph F Francois

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)

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