Services trade liberalization, regulation and deep integration agreements

Abstract

This paper investigates the role of different types of regulation in shaping the impact of services trade reforms. We find that measures of economic governance impact on the magnitude of the net benefits of market opening, and that the moderating effects associated with the quality of horizontal (cross-cutting) regulation may differ from that related to sector-specific regulation. For some services activities, market access liberalization can substitute for weak regulation/governance. For others there is a complementary relationship, implying that for market opening to have the greatest benefits it must be accompanied with measures to improve economic governance performance. Our findings suggest that from a national welfare perspective deep integration efforts need to consider the relationship between market access and regulatory regimes. The fact that our empirical findings are obtained for EU member states – an economic union – demonstrates the general salience of our findings for the design of deep economic integration arrangements.