Going Beyond the 0/1 Dummy: Estimating the Effect of Heterogeneous Provisions in Services Accords on Services Trade

Abstract

The proliferation of preferential trade agreements in services (STAs) and improved availability of data on bilateral services trade flows has resulted in a growing literature on the theoretical and empirical assessment of services trade effects. However, this literature has not considered the different types of provisions found in STAs while estimating the trade effects. We address this issue taking into account the heterogeneity of provisions found in STAs using the Design of Trade Agreements (DESTA) database (Dür et.al, 2014). Our results suggest that not accounting for this heterogeneity lends an upward bias to the magnitudes of the estimated trade effects. This finding is robust to estimations involving only positive and those incorporating zero trade flows as well as to sample coverage (all, EU, non-EU, North-North, North-South).

Keywords: Services trade, PTAs, heterogeneous commitments, trade effects, endogeneity

JEL Classification: F10, F13, F15