US Trade and Access to Trade Facilitating Services in Partner Countries : An Empirical Analysis

The issue of liberalization of international trade in services has received considerable attention in recent years. One of the benefits discussed in the literature is the role of services in facilitating goods trade among countries. We test this claim by analyzing the impact of trade in services on manufactured goods exports to the U.S. using data for 30 trading partners for the period 1992-2000. We use Instrumental Variable estimation to control for potential endogeniety. Our analysis also addresses the debates regarding whether services trade and goods trade are substitutes or complements. The answer depends upon whether imported services are used more intensively in the traded goods sector or in the non-traded goods sector. The key empirical results indicate that, on average, aggregate service imports from the U.S. have a significant and positive impact on goods exports to the U.S. in the case of low income nations but not in the case of high income countries. In most cases, the impact is significant and positive for business services, while it is negative and statistically significant in the case of financial services. The latter outcome could be due to a Rybczynski type effect if financial services are used mostly in sectors that do not export to the U.S.