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

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  • Markusen, James
  • Rutherford, Thomas F.
  • Tarr, David

Abstract

Foreign producer services such as managerial and engineering consulting can provide substantial benefits of specialized knowledge that would be costly in terms of both time and money for domestic firms to develop on their own. This has important implications for public policy since policies that impact on trade and direct investment in services are often quite different from those that impact on trade in goods. 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 labor, they may be generalequilibrium 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 are disruptions along a transition path that suggest potentially important equity consequences of reform.

Suggested Citation

  • Markusen, James & Rutherford, Thomas F. & Tarr, David, 2002. "Trade and Direct Investment in Producer Services and the Domestic Market for Expertise," Conference papers 331054, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331054
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    References listed on IDEAS

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    1. Markusen, James R., 1990. "Derationalizing tariffs with specialized intermediate inputs and differentiated final goods," Journal of International Economics, Elsevier, vol. 28(3-4), pages 375-383, May.
    2. James R. Markusen & Anthony J. Venables, 2021. "Multinational firms and the new trade theory," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 3, pages 47-67, World Scientific Publishing Co. Pte. Ltd..
    3. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
    4. Rutherford, Thomas F., 1995. "Extension of GAMS for complementarity problems arising in applied economic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1299-1324, November.
    5. Lopez-de-Silanes, Florencio & Markusen, James R. & Rutherford, Thomas F., 1994. "Complementarity and increasing returns in intermediate inputs," Journal of Development Economics, Elsevier, vol. 45(1), pages 101-119, October.
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    7. Thomas F. Rutherford & David G. Tarr, 2017. "Trade liberalization, product variety and growth in a small open economy: a quantitative assessment," World Scientific Book Chapters, in: Trade Policies for Development and Transition, chapter 17, pages 389-414, World Scientific Publishing Co. Pte. Ltd..
    8. Francois, Joseph F, 1990. "Producer Services, Scale, and the Division of Labor," Oxford Economic Papers, Oxford University Press, vol. 42(4), pages 715-729, October.
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    More about this item

    Keywords

    International Relations/Trade; Agricultural and Food Policy;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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