Could Commercial Presence Substitute Cross-Border Services Trade? Why Trade in Services May Not Take Off

This is an in-person event.

Tuesday, 4 March 2025 from 11.00 until 12.30.

Abstract:

This research seminar examines one of the mechanisms that may explain why services trade is not taking off by analyzing the effect of International Investment Agreements (IIAs) on sector-specific bilateral service trade, using Poisson Pseudo-likelihood regression model with Multiple Levels of High-Dimensional Fixed Effects (PPMLHDFE) to estimate the gravity equations. The findings provide empirical evidence of a negative correlation—and thus a substitution effect—between Treaties with Investment Provisions (TIPs) and Bilateral Investment Treaties (BITs), which serve as proxies for commercial presence due to their role in fostering FDI, and cross-border trade in services. The sector-by-sector analysis suggests that the expansion of mode three of supply may have come at the expense of mode one, hindering overall services trade as businesses prioritized establishing a physical presence over remote service delivery, particularly in sectors such as telecommunications, computer, and information services, insurance and pension services, intellectual property, recreational activities and transport. However, the balance may be shifting, potentially making the need for commercial presence obsolete as cross-border services can increasingly be provided at arm's length.

Keywords:

International services trade, International Investment Agreements (IIAs), Gravity model, Poisson Pseudo-likelihood regression model with Multiple Levels of High-Dimensional Fixed Effects (PPMLHDFE).

Speaker:

Sara Polo Morcillo is a research intern at UNU-CRIS and a former student of the College of Europe in Bruges. Previously, she received the UNU-CRIS Prize for the best thesis on the EU and Global Governance she submitted at the College of Europe.

REGISTER IN PERSON