“…Instead, we use an approximation of country‐pair trade costs common to gravity literature: distance, contiguity, common language, and colonial relationship. Since the OECD STRI does not capture bilateral trade agreements between country pairs, we also include dummy variables for services‐specific trade agreements, which have been shown to enhance trade in both intermediate and final services (Mukherjee,
2018), and European Economic Area (EEA) membership. Our baseline empirical specification, estimated separately for each sector, is given in Equation 4:
In Equation 4, Border equals zero when i = j (within‐country trade), and one when i ≠ j (international trade).…”