Modeling the effect of the domestic business environment on services trade

This paper models the effect of the indicators of the domestic business environment on services trade in a sample of low, middle and high-income OECD countries. The findings reveal that the time required to enforce a contract is strongly negatively correlated with the growth in services exports in the high-income OECD countries as well as with the growth in services imports in the middle and high-income OECD countries. A strong inverse correlation of the time required to register a property with the growth in services imports is confirmed for the OECD and middle-income countries and the growth in services exports for the low-income countries. Internet diffusion and the strength of legal rights are strongly positively correlated with services exports in the OECD countries while the strength of legal rights is also strongly positively correlated with services imports in the middle and low-income countries. The growth of world income has a strong positive effect on the growth of services exports in the OECD and middle-income countries while domestic income growth strongly impacts on the growth in services imports across the three income category of countries. Finally, tariff is strongly negatively correlated with services exports for the middle-income group of countries.