Regional Liberalisation of Trade in Services

Abstract

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.