Trade and Direct Investment in Producer Services and the Domestic Market for Expertise

20 Pages Posted: 7 Aug 2005

See all articles by James R. Markusen

James R. Markusen

University of Colorado at Boulder - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Thomas F. Rutherford

Centre for Energy Policy and Economics

David G. Tarr

International Trade Analysis

Abstract

Foreign producer services can provide substantial benefits for domestic firms. We build on earlier monopolistic-competition models of intermediate producer services in this paper. Results show that: (1) while foreign services are partial-equilibrium substitutes for domestic skilled labour, they may be general-equilibrium complements, (2) service trade can provide crucial missing inputs that reverse comparative advantage in final goods, (3) the 'optimal' tax on imported services may be a subsidy, and (4) in our dynamic formulation, there may be earnings losses for immobile workers along a transition path that suggest potentially important equity consequences of reform.

JEL Classification: F12, F16, F23

Suggested Citation

Markusen, James R. and Rutherford, Thomas F. and Tarr, David G., Trade and Direct Investment in Producer Services and the Domestic Market for Expertise. Canadian Journal of Economics, Vol. 38, No. 3, pp. 758-777, August 2005. Available at SSRN: https://ssrn.com/abstract=772987

James R. Markusen (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER) ( email )

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Thomas F. Rutherford

Centre for Energy Policy and Economics ( email )

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HOME PAGE: http://www.cepe.ethz.ch/

David G. Tarr

International Trade Analysis ( email )

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United States
5712242796 (Phone)

HOME PAGE: http://https://sites.google.com/site/davidgtarr/

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