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The Effect of Binding Commitments on Services Trade

Published online by Cambridge University Press:  30 July 2019

Dan Ciuriak ,
Ali Dadkhah  and
Dmitry Lysenko Open the ORCID record for Dmitry Lysenko [Opens in a new window]
Dan Ciuriak
Affiliation:
Ciuriak Consulting, Asia Pacific Foundation of Canada (APFC), C.D. Howe Institute, Centre for International Governance Innovation (CIGI), BKP Development Research & Consulting GmbH
Ali Dadkhah
Affiliation:
Ciuriak Consulting
Dmitry Lysenko*
Affiliation:
Independent researcher
*
*Email: dlysenk@gmail.com
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Abstract

It has long been established in theory that uncertainty impacts on firm behaviour. However, the empirical basis for quantifying the uncertainty-reducing effects of trade agreements has not been firmly established. In this paper, we develop estimates of the effect of reducing uncertainty regarding regulation of foreign services markets by making commitments that are bound under a trade agreement. Specifically, we identify the effect on services trade of services trade restrictions, as measured by the OECD's Services Trade Restrictiveness Index (STRI), and the separate effect of ‘water’ in binding commitments, as assessed by the difference between countries’ commitments under the General Agreement on Trade in Services (GATS) or free trade agreements (FTAs) and applied levels of market access, as captured by STRI scores. Using a gravity model, we find that services trade responds positively but inelastically to reductions in services trade barriers, as measured by the STRI and, in our preferred regression, the response to actual restrictions is more than twice – specifically 2.4 times – as strong as the response to comparable reductions in uncertainty, as measured by water. Moving from GATS commitments to FTA commitments leads to a 4.7% increase in services trade because of the reduction in uncertainty.

Keywords

Bindingsservices tradeuncertaintywater in the GATSSTRIGTRIFTRI
Type
Research Article
Information
World Trade Review , Volume 19 , Issue 3 , July 2020 , pp. 365 - 378
Copyright
Copyright © Dan Ciuriak et al. 2019

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Footnotes

This paper is authored in a personal capacity and does not express the views of any institutions with which the authors are affiliated; no responsibility for or agreement with the results should be attributed to any institutions with which the authors are affiliated.

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