Estimating the Impact of Country-Level Policy Restrictions on Services Trade

Book excerpt: Standard techniques used to estimate gravity equations, rely on bilateral variation to identify the effect of trade barriers on bilateral trade flows. In this paper, I develop a method that estimates the effects of country-level variables on trade between countries in the presence of firm heterogeneity and country selection into trade, a natural extension of existing empirical models of international trade. I implement the method in services data, where available measures of trade policy provide information on the average level of regulations restricting entry into a country. The results suggest that policy barriers are important determinants of services trade flows.