Impact of trade in goods on trade in services: A country level panel data analysis

Abstract

Economists in general paid less attention towards international trade in services on the presumption that services are non tradable and hence do not matter in international trade. However, in recent years, international trade in services has got lot of attention from the researchers. The international trade in services has flourished in recent years outstripping the growth of trade in goods. The present paper tries to analyse the impact of trade in goods, along with some other factors, on trade in services of different countries in different income groups. The study uses panel data for a period of 19 years from 1985 to 2003. The analysis of data has been undertaken using fixed effect and random effect modelling framework. The major findings of the study are: i) trade in goods determines the trade in services, ii) FDI is not an important factor in determining trade in services, iii) the impact of trade in goods on trade in services relatively high for developed countries as compared to developing countries.