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How much do agreements matter for services trade ? Anirudh Shingal Senior Research Fellow, WTI anirudh.shingal@wti.org WTO Public Forum 2010, Geneva September 15-17, 2010

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how much do agreements matter for services trade

How much do agreements matter for services trade?

Anirudh Shingal

Senior Research Fellow, WTI

anirudh.shingal@wti.org

WTO Public Forum 2010, Geneva

September 15-17, 2010

The National Centres of Competence in Research (CCR) are a research instrument of the Swiss National Science Foundation (SNSF)

motivation
Motivation
  • 49 of the 55 PTAs notified to the WTO before 2000 were goods agreements
  • In the last decade,150 PTAs have been notified of which nearly half cover trade in services
  • Obvious question – How effective are these agreements in fostering services trade?

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sub text
Sub-text
  • What is the (services) trade effect of a PTA delineated by type (goods v services) and form (North-North v North-South, symmetric v asymmetric)?
  • Is there an incremental trade effect from a services accord if a “goods only” agreement is already in place?

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why might we expect a positive trade effect
Why might we expect a positive trade effect?
  • Barriers to services trade are often prohibitive and not revenue generating, so fewer costs of trade diversion
  • A la trade in goods, benefits from possibilities for increased competition, exploitation of economies of scale and inducement of knowledge spillovers
  • However, “the sequence of liberalization matters more in services trade than in the case of goods trade” because location-specific sunk costs of production are important, so even temporary privileged access for an inferior supplier can translate into a long-term market advantage (Mattoo & Fink, pp 3)

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exploratory tool the gravity model
Exploratory tool: The gravity model
  • Gravity model more applicable to services trade?

- physical proximity (think Mode 4)

- role of distance (Mode 1 v Mode 4)

- services differentiated by quality and location may give rise to monopolistic competition

[driving force behind IIT (think N-N trade); Helpman’s (1987) econometric specification of the NTT similar to the gravity specification]

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however empirical gravity literature is inconclusive on the
However, empirical gravity literature is inconclusive on the…
  • Trade effect e.g. insignificant in Grunfeld & Moxnes (2003); significant in others
  • Effect of distance e.g. more important for services trade in Kimura & Lee (2004); less important in Lejour & Verheijden (2004) & Lennon (2006); and insignificant in Walsh (2006)
  • Effect of common language e.g. insignificant in Kimura & Lee (2004); significant in Lennon (2006) & Walsh (2006)

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so what s new about this paper
So what’s new about this paper?
  • Empirical model is intuitively grounded
  • Uses advanced estimation techniques
  • Explores the impact of goods trade on services trade
  • Delineates trade effect into that emanating from services and “goods only” agreements
  • Disaggregates PTA-trade relationship by economic status of partner countries and reciprocity of commitments
  • Accounts for heterogeneity in trading partners in model estimation
  • Endogenizes the trade effect of PTAs in model estimation

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model specification
Model specification

svsxijt = αij + β1gdpit + β2gdpjt + β3gdsxijt + β4DPCGDPijt + β5hkit + β6hkjt + β7teledenit + β8teledenjt + β9distij + β10ENGij + β11resti + β12restj + β13PTA_SVSijt + εijt

  • Lower cases variables are in log terms
  • Upper case variables are dummy variables
  • Economic data are in real value

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slide10
Data
  • OECD database on bilateral trade in services
  • 25 OECD exporters
  • 53 OECD and non-OECD importers
  • 4327 observations
  • 1999-2003

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number of observations on the ptas
Number of observations on the PTAs
  • Services (22.3% obs.)
  • Goods (27.8% obs.)
  • “Goods Only” (5.5% obs.)
  • NN_PTA_SVS (20% obs.)
  • NS_PTA_SVS (2% obs.)
  • AsymNS_PTA_SVS (1% obs.)
  • SymNS_PTA_SVS (1% obs.)

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empirical results
Empirical results
  • Services trade effect of 11.6%, ceteris paribus and on average
  • A 10% increase in bilateral goods exports would raise bilateral services exports by 1.7%, ceteris paribus and on average
  • Much lower GDP elasticities than in this literature
  • Distance effect significant and less important for services trade than for goods trade
  • All explanatory variables have expected signs but not all estimates are statistically significant

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disaggregating the services trade effect
Disaggregating the services trade effect
  • Only North-North agreements report both a positive and statistically significant trade effect; other results lack statistical significance
  • In aggregate, North-South services accords have the largest positive trade effect
  • Within North-South agreements, asymmetric accords have a larger and always positive trade effect

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sequential and incremental impact of agreements
Sequential and incremental impact of agreements
  • “Goods Only” agreements do not report a statistically significant services trade effect
  • However, when paired with services agreements, the services trade effect of each set of agreements is enhanced
  • Thus, evidence for complementarities exists [this (services) trade effect ranges from 12.1-13.4% for services agreements and 2.3-2.4% for “goods only” accords, ceteris paribus and on average]

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conclusion what do these results tell us
Conclusion: What do these results tell us…
  • Both goods trade and goods agreements have a positive impact on services trade
  • Services trade between countries may be driven as much by differences in factor endowments as by IRS
  • Trade alliances between the North and the South can be less than perfectly reciprocal
  • More prudent to negotiate goods and services agreements in tandem rather than sequentially

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