Trade and Direct Investment in Producer Services and the Domestic Market for Expertise

James Markusen, Thomas F. Rutherford and David Tarr

No 331054, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: Foreign producer services such as managerial and engineering consulting can provide substantial benefits of specialized knowledge that would be costly in terms of both time and money for domestic firms to develop on their own. This has important implications for public policy since policies that impact on trade and direct investment in services are often quite different from those that impact on trade in goods. We build on earlier monopolistic-competition models of intermediate producer services in this paper. Results show that: (1) while foreign services are partial-equilibrium substitutes for domestic skilled labor, they may be generalequilibrium complements, (2) service trade can provide crucial missing inputs that reverse comparative advantage in final goods, (3) the “optimal” tax on imported services may be a subsidy, and (4) in our dynamic formulation, there are disruptions along a transition path that suggest potentially important equity consequences of reform.

Keywords: International Relations/Trade; Agricultural and Food Policy (search for similar items in EconPapers)
Pages: 32
Date: 2002
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Journal Article: Trade and direct investment in producer services and the domestic market for expertise (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:331054

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