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Institute for International Integration Studies IIIS Discussion Paper - page 22 / 41





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significant at the 5 per cent level for total services imports. However, as discussed above, the HTM has been found to be the most appropriate estimator in this case and use of the pooled OLS does not allow for the richness of the panel data database to be fully exploited.

5.2 Tariff Equivalents

The model predictions from the previous section are used to calculate tariff equivalents of the impact of NTBs on services trade. As the inclusion of the various NTB variables was only found to be statistically significant in the case of total services, this methodology cannot be applied to the four disaggregated service sectors.

Several approaches to estimating tariff equivalents using gravity models exist. This paper follows the approach of Park (2002). Tariff equivalents are calculated using equation (11).

T = [ MP / MFT

  • -

    BP / BFT




T is the power of the tariff equivalent (1+t). MP and MFT are the predicted and free trade levels of imports of services respectively. The former is based on the gravity model prediction of imports and the latter is calculated as the predicted level of trade if all barriers to services trade were abolished. As is standard in the literature (e.g., Francois, 2001), the import ratio is measured relative to a free trade benchmark ratio (BP and BFT). The benchmark is taken to be the country with the lowest level of restrictions, reflected in the closeness of predicted and free trade levels of imports, which is the Netherlands in this case.

The elasticity of substitution e is assumed to be 1.95. A wide range of estimates for e exist in the literature, the figure used here is from the Global Trade Analysis Project (GTAP). It is a trade weighted elasticity of substitution for the services sector as a whole. The elasticities in the current version of the GTAP database are based on estimates by Hertel et al. (2004). The resulting tariff equivalents are sensitive to the elasticity used. Park

  • (2002)

    uses a figure of 5.6 for all sectors, Francois et al. (2003) use elasticities between

    • 1.26

      and 1.68 for different service sectors. Earlier research by Francois (2001) used an

elasticity of 4 for overall services trade.

From equation (11), the tariff equivalents of the barriers to trade flows between each bilateral trading pair of countries are calculated. As it is not feasible to report the full set of tariff equivalents between each country and all of its trading partners, the average import tariff equivalents for each country are shown in table 8.

The average tariff equivalents range from 0 to 125 per cent, with a mean of 72 per cent. For a number of countries no figure is reported, these are countries that appear in the services trade database but for which no measure of NTBs is available.

In general, the highest tariff equivalents are found in developing countries (such as Brazil, Morocco or Indonesia). Barriers to trade in Asian countries appear to be particularly large, with the exception of Japan and Hong Kong. Even countries that are traditionally open to trade (e.g., Singapore) are found to have high tariff equivalents.


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