DP12169 The Interconnections Between Services and Goods Trade at the Firm-Level

Author(s): Andrea Ariu, Holger Breinlich, Gregory Corcos, Giordano Mion
Publication Date: July 2017
Keyword(s): Complementarity, Discrete Choice Models, Firm-level Analysis, Trade in Goods, Trade in Services
JEL(s): F10, F13, F14, L60, L80
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12169

In this paper we study how international trade in goods and services interact at the firm level. Using a rich dataset on Belgian firms during the period 1995-2005, we show that: i) firms are much more likely to source services and goods inputs from the same origin country rather than from different ones; ii) increases in barriers to imports of goods reduce firm-level imports of services from the same market, and conversely. We build upon a discrete-choice model of goods and services input sourcing that can reproduce these facts to design our econometric strategy and use the estimated model for counterfactual analysis. In particular, we look at the quantitative impact of reductions in goods and services barriers between the US and the EU. Our findings have important implications for the design of trade policy. They suggest that a liberalization of service trade can have quite direct and sizable effects on goods trade and vice-versa, and that jointly liberalizing goods and services trade brings about substantial complementarities.