Kiel Working Papers, Kiel Institute for World Economics
No 1293:
Service Trade Liberalization as a Handmaiden of Competitiveness in Manufacturing: An Industrialized or Developing Country Issue?
Rolf J. Langhammer
Abstract: This paper discusses the issue whether developing
countries forego chances in world manufactured markets by protecting
intermediate services against market entry of new suppliers. By scanning
the empirical literature on effective rates of protection (ERP), the
evidence is supportive. Yet, it seems more the indirect effect via
expanding the service sector in total through liberalization and
deregulation than the direct effect of lowering ERP in intermediate service
industries for downstream manufacturing industries which is relevant.
Developed countries on the other hand enjoy a much lower level of
protection in important intermediate services like banking and telecom and
thus these industries can be instrumental to help downstream manufacturing
industries in adjustment and restructuring. It is argued that especially in
the EU competition in intermediate services will further rise due to
various EU-policy rooted factors. As a result, protection rates of services
in individual EU countries will converge. This paper presents a theoretical
model of the labor market in which these effects can be analyzed. We then
calibrate the model with respect to the German labor market to shed light
on the relative strengths of these effects and thereby assess the degree to
which low-wage subsidies encourage or discourage employment
Keywords: Trade Liberalization, Services, Effective Rates of Protection; (follow links to similar papers)
JEL-Codes: F13,; F15; (follow links to similar papers)
26 pages, September 2006
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