Trade in services: Cross-border trade vs commercial presence. Evidence of complementarity

Abstract

The purpose of this paper is to empirically investigate the relationship between cross border trade in services (Mode 1) and commercial presence in services (Mode 3). I postulate that these two modes of supply facilitate each other, and that, in contrast to the manufacturing sector, this complementarity might occur even at the level of horizontal investment. For the empirical analysis I make use of bilateral data on US majority-owned foreign affiliate operations (MOFAs). The same exercise is carried for the case of goods sectors. After using two different estimating techniques, results confirm the intuition, not only Mode1 and Mode 3 in services are complements but also the complementarity relationship is stronger than that found in the case of goods. Moreover, the complementarity between this two modes of supply, for the case of services, is also found at the level of horizontal FDI.international trade in services ; modes of supply ; FDI