Does the depth of trade agreements matter for trade in services?

Abstract

AbstractIn recent years, deep trade agreements have spread around the world and gone beyond tariff reductions. We aim to test whether the depth of agreements fosters trade in services. To do so, we use a structural gravity‐type model and build new indicators of the depth of agreements based on the number of articles that are legally enforceable and that are related to trade in services. We show that, while only the deepest trade agreements raise trade in services, the quality of institution determines how deep agreements affect both the intensive (measured by the quantity of trade) and extensive margins of trade (measured by the number of service products exported and the share of the most exported service product in total services exports). This result is more pronounced for some service provisions and is robust after we control for the endogeneity of deep trade agreements. Finally, our results also hold for the Middle East and North Africa countries that we examine as an example of an emerging region that has a comparative advantage in services but whose most of the trade agreements are rather shallow.