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Institute for International Integration Studies IIIS Discussion Paper - page 23 / 41





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The average for the EU15 countries is 48 per cent (this rises to 57 per cent with the inclusion of the ten new member states). Amongst the EU members, the figures vary widely. The Netherlands, Belgium-Luxembourg and the UK have low or zero tariff equivalents, while Austria, Italy and Greece have relatively high barriers (74, 75 and 84 per cent respectively).

Direct comparisons with earlier research by Hoekman (1995), Francois et al. (2003) and Park (2002) are difficult. Hoekman’s tariff equivalents are relative to a “guess-estimate” of the tariff in the most protectionist country. Francois et al. and Park employ similar methodologies to this paper, but both use different elasticity parameters. In addition, all three provide tariff equivalents at the sectoral level, rather than for total services trade and the country coverage differs. However, some similarities and differences in the relative levels of protection between countries are notable.

Francois et al. (2003) calculate the tariff equivalent of the Netherlands to be zero across all sectors, as found for total services in this paper (Park, 2002, also finds relatively low barriers for the Netherlands). Similarly, low levels of protection are also found for other EU countries such as Germany and Belgium in all three studies. In contrast to the results in this paper, the UK is found to have relatively higher levels of protection in many sectors in Park. For the United States and Canada, Park also finds relatively high levels of protection but Francois et al. calculate low tariff equivalents for North America. Similar patterns exist for Asian countries in this paper and in Park, in that both find them to be relatively protectionist. Francois et al. estimate very low tariff equivalents for their aggregate high-income and other Asia regions.

6. Conclusions

This paper employs a gravity model approach to analyse the determinants of services trade and to measure the importance of non-tariff barriers on trade in services. Using an OECD database providing total services imports as well as imports for four sub-sectors (travel, transport, government and other commercial) a variety of panel data estimators are applied and tested.

The Hausman-Taylor model is used to estimate the gravity equation for services for the first time. It is found to be superior to the random effects model, which typically suffers from heterogeneity bias in the gravity model, and avoids the problems associated with dealing with time-invariant variables using a fixed-effects model.

The standard gravity framework explains the determinants of services well. The GDP per capita of the importing and exporting countries and a common language are found to be the most important determinants of trade between two countries. Unlike trade in goods, adjacency and membership of the European Union are not found to increase services trade. The results also confirm some earlier research suggesting that distance is not a significant determinant of services trade flows.

A variable measuring the non-tariff barriers (NTB) to trade in each importing country, primarily based on trade restrictiveness indexes of the Australian Productivity Commission, is added to the gravity equation to calculate a set of tariff equivalents of the restrictions to services trade. The NTB variable is only found to be weakly significant (at the 15 per cent level) in the case of total services and not at all for the four sub-sectors.


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