The Political Economy of Services Trade Agreements

41 Pages Posted: 23 Jun 2016

See all articles by Matteo Fiorini

Matteo Fiorini

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Mathilde Lebrand

European University Institute

Date Written: June 01, 2016

Abstract

Why do governments sign services trade agreements? This paper focuses on the role of international agreements in the context of trade in services when services are used as intermediate inputs in downstream industries. Compared to goods, services inputs are mostly non-tradeable and complementary to other factors of production. We build a theoretical trade policy framework in which firms use foreign investment to contest foreign markets in services sectors and governments can restrict the entry of multinationals. Commitment helps governments to avoid political pressures that would result in protectionist measures leading downstream industries to inefficiently reduce their production. First we show that the role of services as complementary inputs is central to explain governments’ commitment to services trade liberalization. Second we provide new results on the influence of lobbying by both national firms and foreign multinationals on trade policies and the gains from commitment. Finally we discuss how the bargaining power of the government, the size of national services sectors and the difference in valuation between national and foreign contributions affect the willingness of the government to sign a services trade agreement.

Keywords: trade in services, trade agreements, FDI, lobbying

JEL Classification: D430, F130, F210, L800

Suggested Citation

Fiorini, Matteo and Lebrand, Mathilde, The Political Economy of Services Trade Agreements (June 01, 2016). CESifo Working Paper Series No. 5927, Available at SSRN: https://ssrn.com/abstract=2799601

Matteo Fiorini

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Mathilde Lebrand (Contact Author)

European University Institute ( email )

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014
Italy

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