Regional Liberalisation of Trade in Services

Abstract

This paper investigates quantitatively the trade-enhancing effect of regional trade agreements (RTAs) under the General Agreement on Trade in Services Article V (services RTAs) by applying a gravity regression analysis to four major services sectors - financial, business, communication and transportation services - while controlling for both country-specific and time-varying importer and exporter fixed effects. The regression analysis covers bilateral imports in services consisting of 20,986 country-pairs in total over six years (2000-05). Our results indicate that sector-specific trade-creating effects of services RTAs are significantly positive without incurring trade-diverting effects, excluding transportation services. Moreover, we find that there is a significant cumulative effect of services RTAs, excluding communication services and a complementary relationship between goods and services imports. In addition, the trade-creating effect of services RTAs is stronger between developed members compared with between developed and developing countries.