The Effect of Binding Commitments on Services Trade

Abstract

It has long been established in theory that uncertainty impacts on firm behaviour. However, the empirical basis for quantifying the uncertainty-reducing effects of trade agreements has not been firmly established. In this paper, we develop estimates of the effect of reducing uncertainty regarding regulation of foreign services markets by making commitments that are bound under a trade agreement. Specifically, we identify the effect on services trade of services trade restrictions, as measured by the OECD's Services Trade Restrictiveness Index (STRI), and the separate effect of ‘water’ in binding commitments, as assessed by the difference between countries’ commitments under the General Agreement on Trade in Services (GATS) or free trade agreements (FTAs) and applied levels of market access, as captured by STRI scores. Using a gravity model, we find that services trade responds positively but inelastically to reductions in services trade barriers, as measured by the STRI and, in our preferred regression, the response to actual restrictions is more than twice – specifically 2.4 times – as strong as the response to comparable reductions in uncertainty, as measured by water. Moving from GATS commitments to FTA commitments leads to a 4.7% increase in services trade because of the reduction in uncertainty.

Should Bangladesh join Regional Comprehensive Economic Partnership (RCEP)? The gravity explanation of Bangladesh dilemma

“…Not controlling for such accessibility issues provides biased outcomes no matter how good specification has been chosen for the analysis. Controlling for multilateral trade resistance can be done by various methods; however, we primarily apply the technique used by Dall'Erba et al (2021), Ciuriak et al (2020) and Feenstra (2016). The approach these studies is known as the pairwise time-FE.…”

Services Trade Policies and Economic Integration: New Evidence for Developing Countries

“…commitments in trade agreements often is considerable (see, e.g., Borchert, Gootiiz, and Mattoo, 2011;Miroudot and Shepherd, 2014;Miroudot and Pertel, 2015;Ciuriak et al, 2017). Research on the value of reducing the difference between bound and applied services policies has shown that this may be an important source of welfare gain, driven by a reduction in policy uncertainty (Lamprecht and Miroudot, 2018;Ciuriak et al, 2019;Egger et al, 2019).…”

Services Trade Restrictiveness Index (STRI)

“…There is no "water" for measures that are not covered by GATS commitments (Figure 1). 5 Another feature of the GATS is that countries are free to make commitments or not in any sector or subsector. However, when they do not have market access or national treatment commitments in a specific sector or sub-sector, they still create "water".…”

“…The intra-EEA STRI, on the other hand, is an example of an application of the STRI to quantify preferential regimes. The intra-EEA STRI measures barriers to services trade in the Single Market of the European Economic Area, where the internal regulatory environment for services trade is much more liberal than that which is applied towards third countries (Benz and Gonzales, 2019 [5]).…”