DP10834 Services Trade Restrictiveness and Manufacturing Productivity: The Role of Institutions

Author(s): Cosimo Beverelli, Matteo Fiorini, Bernard Hoekman
Publication Date: September 2015
Keyword(s): institutions, productivity, services, trade policy
JEL(s): F14, F15, F61, F63
Programme Areas: International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10834

We study the effect of services trade restrictiveness on manufacturing productivity for a broad cross-section of countries at different stages of economic development. Decreasing services trade restrictiveness has a positive indirect impact on the manufacturing sectors that use services as intermediate inputs in production. We identify a critical role of local institutions in shaping this effect: countries with high institutional capacity benefit the most from services trade policy reforms in terms of increased productivity in downstream industries. We argue that this reflects the characteristics of many services and services trade and provide a theoretical framework to formalize our suggested mechanisms.