Are trade costs higher for services than for manufactures? Evidence from firm-level data

Using a unique database, I estimate the costs of trading with European Union countries, relative to the costs of trading with the domestic market, for services and manufacturing firms located in the Basque Country region of Spain. I find that, despite the dramatic improvement in information and communication technologies, international trade costs for services are still much larger than for manufactures. Based on standard elasticities of substitution used in the literature, our results suggest that the tariff equivalent of international trade costs is between 50% and 60% larger for services than for manufactures.