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Trade in Services and Trade in Goods: Differences and Complementarities

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  • Carolina Lennon

Abstract

The purpose of this paper is twofold. First, we explore empirically to what extent the determinants of trade in services differ from those of trade in goods. Second, by the use of instrumental variables, we explore potential complementarities between bilateral trade in goods and bilateral trade in services. Using a gravity framework, the main results show that bilateral trust and contract enforcement environment, networks, labour market regulations and variables denoting technology of communication have a higher impact on services trade than on goods trade. Finally, after using instrumental variables, we find that bilateral trade in goods explains bilateral trade in services the resulting estimated elasticity is close to 1. Reciprocally, bilateral trade in services also affects bilateral trade in goods, though to a lesser extent we find an estimated (positive) elasticity of 0.46.

Suggested Citation

  • Carolina Lennon, 2009. "Trade in Services and Trade in Goods: Differences and Complementarities," wiiw Working Papers 53, The Vienna Institute for International Economic Studies, wiiw.
    • Handle: RePEc:wii:wpaper:53
    as

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    References listed on IDEAS

    as
    1. Carolina Lennon & Daniel Mirza & Giuseppe Nicoletti, 2009. "Complementarity of Inputs across Countries in Services Trade," Annals of Economics and Statistics, GENES, issue 93-94, pages 161-182.
    2. repec:adr:anecst:y:2009:i:93-94:p:08 is not listed on IDEAS
    3. repec:bla:econom:v:63:y:1996:i:252:p:611-31 is not listed on IDEAS
    4. James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December.
    5. Mary Amiti & Shang-Jin Wei, 2005. "Fear of service outsourcing: is it justified? [‘Location of vertically linked industries: agglomeration versus comparative advantage’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 20(42), pages 308-347.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    international trade in services; trade in goods; gravity equations;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • L8 - Industrial Organization - - Industry Studies: Services

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