Regulation and Service Exports: Theoretical and Empirical Analyses

This paper constructs a theoretical framework to analyze the impacts of deregulation on service exports using the monopolistic competition model developed by Krugman (1980). The framework entails two core claims. First, the positive effects of deregulation on service exports are more prominent in the differentiated or knowledge-intensive service sectors such as insurance, business, and cultural and recreation sectors than those in the standardized ones such as travel and communication sectors. Secondly, the trade-stimulating impacts of deregulation in exporting country are of larger magnitude than those of deregulation in importing country. We then empirically test and prove these arguments using the Hausman Taylor estimation method and the World Bank's STRI dataset. From these results, some policy implications are drawn for service industry development.