The effects of the Services Directive on Intra-EU Trade and FDI

Henk Kox, Arjen Lejour

Research output: Contribution to journalArticleScientificpeer-review

Abstract

International policy heterogeneity creates trade and investment costs for service firms doing business in other countries. Service providers have to comply with different rules in each foreign market where they operate. Complying with these regulations causes fixed market-entry costs, specific for each export market. We develop a new indicator for bilateral policy heterogeneity that is used as a proxy for the costs of policy heterogeneity. We explain bilateral services trade and services fdi in the European Union using a gravity model augmented with the heterogeneity indicator. We find a robust and strong negative impact of policy heterogeneity costs on services trade and fdi. The empirical results are used for assessing the potential impacts of the Services Directive proposed in 2004 by the European Commission. Several elements in the proposals would effectively reduce policy-related market-entry costs for services providers. We project that the 2004 Services Directive could increase intra-eu services trade by 30% to 62% and direct investment in services by 18% to 36%.
Original languageEnglish
Pages (from-to)747-769
Number of pages23
JournalRevue Economique
Volume57
Issue number4
Publication statusPublished - 2006

Fingerprint

Services trade
Costs
Service provider
Market entry
Bilateral
Entry costs
Direct investment
European Union
Empirical results
Service firms
Export markets
Gravity model
International policy
European Commission

Keywords

  • trade in services; gravity ; trade restrictions

Cite this

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title = "The effects of the Services Directive on Intra-EU Trade and FDI",
abstract = "International policy heterogeneity creates trade and investment costs for service firms doing business in other countries. Service providers have to comply with different rules in each foreign market where they operate. Complying with these regulations causes fixed market-entry costs, specific for each export market. We develop a new indicator for bilateral policy heterogeneity that is used as a proxy for the costs of policy heterogeneity. We explain bilateral services trade and services fdi in the European Union using a gravity model augmented with the heterogeneity indicator. We find a robust and strong negative impact of policy heterogeneity costs on services trade and fdi. The empirical results are used for assessing the potential impacts of the Services Directive proposed in 2004 by the European Commission. Several elements in the proposals would effectively reduce policy-related market-entry costs for services providers. We project that the 2004 Services Directive could increase intra-eu services trade by 30{\%} to 62{\%} and direct investment in services by 18{\%} to 36{\%}.",
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The effects of the Services Directive on Intra-EU Trade and FDI. / Kox, Henk; Lejour, Arjen.

In: Revue Economique, Vol. 57, No. 4, 2006, p. 747-769.

Research output: Contribution to journalArticleScientificpeer-review

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T1 - The effects of the Services Directive on Intra-EU Trade and FDI

AU - Kox, Henk

AU - Lejour, Arjen

PY - 2006

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AB - International policy heterogeneity creates trade and investment costs for service firms doing business in other countries. Service providers have to comply with different rules in each foreign market where they operate. Complying with these regulations causes fixed market-entry costs, specific for each export market. We develop a new indicator for bilateral policy heterogeneity that is used as a proxy for the costs of policy heterogeneity. We explain bilateral services trade and services fdi in the European Union using a gravity model augmented with the heterogeneity indicator. We find a robust and strong negative impact of policy heterogeneity costs on services trade and fdi. The empirical results are used for assessing the potential impacts of the Services Directive proposed in 2004 by the European Commission. Several elements in the proposals would effectively reduce policy-related market-entry costs for services providers. We project that the 2004 Services Directive could increase intra-eu services trade by 30% to 62% and direct investment in services by 18% to 36%.

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