Regulatory Heterogeneity As Non-Tariff Barrier in Services Trade

28 Pages Posted: 18 Nov 2016

See all articles by Henk L.M. Kox

Henk L.M. Kox

KVL Economic Policy Research

Arjan Lejour

Tilburg University; CPB Netherlands Bureau of Economic Policy Analysis

Date Written: July 30, 2006

Abstract

International trade in services is hampered by non-tariff barriers that originate from national regulations. Not only the level of regulation in home or export country matters, but also the inter-country differences in regulation for service markets. Regulatory measures tend to affect fixed costs rather than variable costs. The fact that regulations often differ by market, means that the fixed costs of complying with regulations in an export market are in fact sunk market-entry costs. Our theoretical model demonstrates that policy heterogeneity between countries has a negative impact on bilateral service trade. We quantify bilateral policy variety through a new indicator that is applied in a gravity model for explaining service trade among EU countries. The empirical results support our theoretical prediction: the degree of regulatory heterogeneity is inversely related to the level of bilateral service trade. The results are applied to simulate the possible impacts of recent EU proposals for the services market. It shows that making more use of mutual recognition in regulation could increase bilateral trade in commercial services among EU countries by 30% to 60%.

Keywords: services trade, policy heterogeneity, non-tariff barriers, EU

JEL Classification: L1, L5, L8, F12, F14

Suggested Citation

Kox, Henk L.M. and Lejour, Arjan M., Regulatory Heterogeneity As Non-Tariff Barrier in Services Trade (July 30, 2006). Available at SSRN: https://ssrn.com/abstract=2872032 or http://dx.doi.org/10.2139/ssrn.2872032

Henk L.M. Kox (Contact Author)

KVL Economic Policy Research ( email )

Het Wielsem 10 (k. 326A)
Den Bosch, 5231 BW
Netherlands

Arjan M. Lejour

Tilburg University ( email )

PO Box 90153
Tilburg, 5000 LE Ti
Netherlands
+31 652485843 (Phone)

HOME PAGE: http://https://research.tilburguniversity.edu/en/persons/arjan-lejour

CPB Netherlands Bureau of Economic Policy Analysis ( email )

Bezuidenhoutseweg 30
po box 80510
The Hague, 2594AV
Netherlands
+31 652485843 (Phone)

HOME PAGE: http://www.cpb.nl/en/medewerkers/arjan-lejour

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