Income differences in services trade partners

Abstract

This article examines how differences in the income levels of trading partners influence the bilateral trade of services from 2000 to 2010. Overall, the results show that dissimilar per capita income levels across trade partners positively and significantly influence services trade. These findings hold not only when utilizing bilateral data on aggregate services trade, but also when considering bilateral services trade at the industry level. Our findings suggest that policy-makers looking to expand trade in services should foster trading relationships with partners that have dissimilar income profiles.

Keywords:

• services trade
• bilateral trade
• Linder hypothesis
• income differences

JEL Classification:

• F14
• F10

Notes

¹ Australia, Canada, Chile, Chinese Taipei, Colombia, Costa Rica, the EU, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mexico, New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, South Korea, Switzerland, Turkey and the US.

² Gómez-Herrera (2013) provides a thorough discussion of the gravity model and its various estimation methods.

³ Refer to Francois and Pindyuk (2013) for a list of partner countries.

⁴ Note that industry breakdowns of aggregate services trade are not available for all trade partners.