Author: Sarah Creemers, Loe Franssen
Exporting services: challenges to start, and to expand

5. Expanding trade in services: what limits firms?

Authors Dutch version: Sarah Creemers, Loe Franssen
Translated by CBS Vertaalbureau

Firms continue to face various obstacles even after they have overcome barriers to entry and are able to export their services abroad. This chapter examines the extent to which such barriers affect the export potential of existing service providers. Can we see any differences between the various trading restrictions? Can we draw a distinction between barriers at the border and behind the border?

5.1 Introduction

Barriers to trade can be defined as natural or man-made barriers that impede domestic and international transactions between economic entities. They may be geographic and cultural in nature or be erected as a result of policy. Geographic and cultural trade barriers encompass a wide range of factors, such as physical distance between trading countries, language barriers, cultural differences, virtual proximity and the degree of digitisation.

In the case of trade in services, it is more difficult to harmonise legislation and regulation between the various trading partners, and language and cultural barriers play a bigger role than in the case of trade in goods (Walsh, 2006). In contrast to trade in goods, services are not limited by tariff measures and border controls. Trade in services generally requires the movement of people and capital between countries. In most countries there are legal and regulatory requirements that must be satisfied in that regard (Walsh, 2006). Barriers to trade in services relate almost exclusively to regulatory measures or bureaucracy. National regulation – such as licences, quotas, professional qualifications and immigration rules – determine when and how foreign providers can enter a market. These are also referred to as non-tariff barriers (Jozepa et al., 2019). The many types of regulation make it harder for foreign service providers both to access markets and to expand activities in markets. In contrast to tariffs or transport costs, firms are not all impeded to the same extent by non-tariff barriers. That is because some firms appear better able than others to cope with regulatory obstacles in trade in services (Benz et al., 2020).

Whereas Chapter 4 examined the extent to which such trade barriers affect the initial entry into a foreign market, this Chapter takes a different perspective: to what extent do these trade barriers impede existing activities of Dutch service exporters in foreign markets? That requires us first to draw a clear distinction between barriers that impede international service providers’ access to foreign markets (also known as extensive margin of trade) and operational barriers that affect the expansion of their export portfolio in markets they already serve (also known as intensive margin of trade). On the basis of the firms in a comprehensive sample survey (see box in Section 5.2), a descriptive account is given of how the export value of Dutch services relates to various natural and non-natural trade barriers. Finally, we endeavour to provide a general picture of the significance of these trade barriers by means of econometric analyses.


Chapter 5 of this Internationalisation Monitor examines the extent to which geographic, cultural and non-tariff barriers affect exports by existing service providers. Section 5.2 discusses how non-tariffs trade barriers can be classified. We distinguish between barriers to entry and barriers to operations. Firms’ trading portfolios are discussed in Section 5.3. The difference between the extensive and the intensive export margin is central here. Trade barriers make it more difficult for firms to supply goods or services to foreign markets, sometimes even to the extent that they are completely prevented from exporting. The main barriers to international trade in services are natural barriers (geographic or cultural) and non-tariff barriers. Section 5.4 focuses on natural barriers. Section 5.5 examines non-tariff barriers to services, which we will measure on the basis of two external data sources: the Services Trade Restrictiveness Index (STRI) of the OECD and the Restrictiveness Indicator of the European Commission. The impact of barriers to service exports is examined econometrically in Section 5.6. The methodology and data used are described in Section 5.8.

5.2 Barriers to entry versus barriers to operations

Trade barriers come in different shapes and sizes. What they generally have in common is that they entail costs for a firm. These may be one-off or ongoing and may complicate or even completely preclude the activities of foreign service providers (Australian Government, 2015; Egger & Shingal, 2021). Some costs can be recouped, however, for example if they relate to a (possibly necessary) investment in quality (Van den Berg & Franssen, 2021). An important distinction can also be drawn between barriers that occur particularly at the border – at market entry – and barriers that mainly play a role behind the border and affect ongoing operations.

If trade barriers prevent service providers from entering certain international markets, we describe them as barriers to entry. These barriers to entry may distort investment decisions, including the decision on whether to open up a (possibly new) export market. Significant barriers to entry may mean that only the most productive firms are able to bear the fixed costs associated with entering foreign markets (Nordås et al., 2008). Examples of barriers to entry include start-up procedures involving high administrative costs and complex rules or the requirement to obtain the necessary licences and permits (Australian Government, 2015). Professional service providers, for example, generally require a permit in order to work abroad and they need to demonstrate that local qualification requirements have been satisfied (Nordås et al., 2008). The fact that legislation and regulation differ greatly between countries means that the fixed costs of complying with local regulations in a specific export market are in fact sunk costs for market access. The service provider has to decide whether or not to “invest” in market access and to bear these fixed costs (Kox & Lejour, 2005). In Chapter 4 of this Internationalisation Monitor we examine the extent to which trade barriers faced by Dutch service providers abroad affect their potential export start.

When a firm has overcome barriers to entry, it generally still has to contend with other barriers, the so-called barriers to operations (Australian Government, 2015; Nordås & Rouzet, 2017). Administrative formalities can negatively impact the activities of international service providers. An example of this kind of paperwork is that logistics service providers in some countries have to submit a certain set of documents to the local port authority for every ship entering coastal waters (Dincer & Tekin-Koru, 2020). It may be more complex for foreign service providers to fulfil local regulations, because it will require more effort to find the full, correct information concerning local legislation and practices than for local service providers (information asymmetries) (Crozet et al., 2016).

5.3 Extensive versus intensive export margin 

In parallel with the discussion on the classification of trade barriers, it is possible to characterise firms’ trade portfolios. The term extensive margin of trade is used when it comes to entering a new foreign market or exporting a new product. A firm can increase its extensive margin of trade, for example, by exporting to more countries, or by exporting additional products or services. The intensive margin, on the other hand, relates to the trade value involved in existing trade relationships. Hence when a firm successfully increases its sales of the same product or service to the same market from one year to the next, this is referred to as an intensification of this trade flow and growth in the intensive margin.

Figure 5.3.1 shows an overview of the extensive margin of trade portfolio of the 950 firms in our dataset as discussed in the box in Section 5.2. It can be seen, for example, that these firms trade services with an average of almost 60 countries, by means of both imports and exports. They have foreign subsidiaries in an average of 20 countries, while they export goods to almost 40 other countries. It should be noted, however, that the EU counts as a single country within these trade in goods statistics, whereas it is broken down into individual EU countries in the trade in services statistics. The actual number of countries will therefore be higher than the stated 40.

5.3.1 Average number of destinations by activity, 2014-2021
 Number of destinations (Destinations)
Services imports60
Services exports59
Goods exports36

These exporters also export an average of five different types of services and they have been active as service exporters for an average of six of the eight years under review. This does not mean, however, that every service is exported to the same country every (or almost every) year. The average export spell, the number of years in which one and the same product or service is exported to one country without interruption, is four years. Previous CBS research (Boutorat et al., 2019; Van den Berg et al., 2022) has already shown that the Netherlands has many intermittent exporters. That is confirmed again in Figure 5.3.2 in the case of trade in services, since no fewer than one-quarter of all export relationships last only one year. Only 16 percent of all relationships were continuous or uninterrupted.

5.3.2 Average duration of export spell1)
 Share (%)
1) Notice that part of the shown export spells will continue in the years outside the scope of this research: before 2014 or after 2021 (respectively the first and the last year in this analysis). This figure is therefore an underestimation of the real duration of export spells.

To gain a picture of the intensive margin of trade in services, we focus on the trade relationships that continue without interruption over the eight years under review (2014-2021). We then see in Figure 5.3.3 that the average amount involved in these trade relationships grows from €800 in 2014 to over €1,600 in 2021 for export transactions and from €700 to almost €1,500 for import transactions. In both imports and exports we therefore see growth in the intensive margin: the value of existing trade relations doubles in a period of eight years. At the firm level, we also see that the average export (import) value of services per firm grows from €72,000 (€66,000) in 2014 to over €160,000 (€145,000) in 2021.

5.3.3 Average value of trade in services by firm
YearExports (Euro)Imports (Euro)

5.4 Natural trade barriers

Trade barriers can be broadly divided into natural and non-natural trade barriers, such as import tariffs (see CBS, 2020a) or non-tariff measures (see CBS, 2021). Natural trade barriers concern geographic or cultural factors. We explain four of these in this section.

Having been traditionally developed to describe goods trade, the gravity model can explain trade in services flows between countries as effectively (see Kimura & Lee, 2006; Nordås & Rouzet, 2017). In the original gravity model of Tinbergen (1962), the distance between and the economic size of the destination country and the country of origin, measured in terms of GDP, are the main determinants of international trade. GDP makes a market attractive, whereas distance negatively impacts this relationship. Figure 5.4.1 shows that, in the case of trade in services too, the trade value is positively correlated with the size of the destination market.

In the case of geographic distance, it is known that this has a clearly negative effect on the value of goods trade. The relationship is less obvious in trade in services, because a service does not always have to be physically transported but can often be supplied virtually/digitally. Nevertheless, in the case of services too, the physical distance is still negatively correlated with the trade value: the greater the distance to the destination market, the smaller is the  trade value (see Figure 5.4.2).

Virtual proximity has recently been considered in the literature as an alternative indicator for the proximity of countries. Its measurement is based on bilateral hyperlinks and bilateral website visits between countries (Chung, 2011; Hellmanzik & Schmitz, 2016). This could be a more relevant measure of distance than geographic distance, particularly for trade in services. Virtual distance (or proximity) does indeed prove to be an important determinant: according to the Chung (2011) method, countries that are virtually close trade relatively more with each other (see Figure 5.4.3). This means that consumers purchase services more often from providers in countries about which they have more information and with which they feel more connected. Virtual connectedness can reduce uncertainty about the quality of services procured from abroad (Hellmanzik & Schmitz, 2016).

The rise of the internet and new digital technologies makes online service provision abroad easier (Loungani et al., 2017; WTO, 2019). The extent to which countries are able to adopt new technologies differs greatly, however. The World Bank’s Digital Adoption Index (DAI) surveys these differences and examines worldwide access to digital technologies. Digitisation has a major impact on international trade. It has simplified it, particularly in the case of e-commerce (Jayasooriya, 2021). We also see this in Figure 5.4.4: relatively more is exported to countries with higher scores in this digital adoption index.

5.5 Non-tariff barriers

As stated above, in addition to natural trade barriers there are also non-natural trade barriers. These are policy measures that can impede trade in services in some way, either knowingly or unknowingly. This section looks at non-tariff barriers to trade in services, which we will measure on the basis of two external data sources: the Services Trade Restrictiveness Index (STRI) of the OECD and the Restrictiveness Indicator of the European Commission. The many forms of regulation impede both access to (extensive margin) – as can be seen in Chapter 4 – and the expansion of existing export spells (intensive margin) for foreign service providers. Tables 5.9.1 and 5.9.2 in the annex contain information on the link between the external data sources of the OECD and the European Commission and Statistics Netherlands data sources.

Services Trade Restrictiveness Index measured by the OECD

The OECD Services Trade Restrictiveness Index (STRI) database combines information from more than 16,000 laws and legal provisions for 22 service sectors in 50 countries on an annual basis from 2014 to 2021 inclusive. This database provides an index value for each sector, each country and each year. STRI indices take the value from 0 to 1. Complete openness to trade and investment gives a score of 0, while being completely closed to foreign services providers yields a score of 1.

The OECD groups the barriers to trade in services into five policy areas (see box in Section 5.1 for an illustration of these barriers):

  • Restrictions on foreign entry (such as limits on the number of foreign shareholders, nationality requirements for members of the executive board, restrictions on cross-border mergers);
  • Restrictions on the free movement of people (such as visa requirements and permits to exercise certain professions);
  • Other discriminatory measures (for example regarding taxes, grants or public procurement);
  • Barriers to competition (such as anti-trust policy);
  • Regulatory transparency.

Restrictions to market access for foreign service providers protect local firms against competition. In addition, barriers to operations, such as burdensome regulatory procedures and processes, impede both local and foreign firms. A high STRI score would therefore be expected to have a negative impact on the international performance of the service sector in question (Nordås & Rouzet, 2017).

Since the European Economic Area (EEA) constitutes a common market and thus involves deeper integration than a regular preferential trade agreement, which does not fall within the STRI, the OECD recently introduced an additional version of the STRI: the intra-EEA Services Trade Restrictiveness Index. This index covers the same five policy areas as the original STRI and is intended to provide an accurate picture of the trade restrictions in services between the 25 EEA countries. Benz & Gonzales (2019) show that trade in services in the EEA is considerably more liberal than the multilateral policy that the EEA member states apply to non-members. Certain trade barriers nevertheless remain within the internal market.

In this chapter we therefore use both the original and the intra-EEA STRI. More specifically, we have used the intra-EEA STRI value of the destination country if the destination country concerned, like the Netherlands, is a member of the EEA. If the destination country is not an EEA member, the original STRI of the destination country is used. We have thus adopted the same method as that described in Jungmittag & Marschinski (2020).

High STRI, many restrictions, less international trade in services

Nordås & Rouzet (2017) analyse the impact of the STRI on international trade in services. Here they use a (PPML) gravity model. A gravity model allows a distinction to be drawn between natural barriers – such as geographic and cultural differences – and barriers resulting from policy. The authors find sufficient statistical evidence to support the hypothesis that larger barriers (i.e.: a higher STRI) are associated with less trade in services. In most service sectors a higher STRI is associated with lower imports, indicating that the costs for foreign suppliers of entering and serving the host market are raised by trade-restrictive regulations as expected. The authors find in particular a strong connection between a high STRI and lower imports of legal services, telecommunications, commercial banking services, insurance, maritime transport services and courier services. This emphasises the importance of an open and competitive regulatory regime in strengthening the international competitiveness of service exporters (Nordås & Rouzet, 2017).

Rouzet et al. (2017) also find that service providers’ intensive margin of exports is inversely proportional to the legal restrictions in the importing country, as measured by the OECD STRI. Complex and restrictive regulation in the destination country limits the trade value. These trade restrictions on services reflect not only the operational trading costs but also one-off fixed and sunk costs.

We also note that the Dutch exporters in our dataset export less on average to countries with a higher STRI (see Figure 5.5.1). This relationship is not as pronounced, however, as the relationships we see in the case of natural barriers in the previous section. That may be because the effect of the non-natural barriers can differ between sectors, but also because the different types of barriers that make up the overall indicator may be related to trade in various ways.

Type of restriction and foreign direct investments

Jungmittag & Marschinski (2020) study the impact of trade barriers in services on bilateral greenfield investment projects (FDI)1) in four different business service sectors: computer, accounting, legal, architecture and engineering. In their econometric models they draw a distinction between the various STRI restrictions: restrictions on foreign entry, restrictions on the free movement of people and other trade restrictions on services. It is important to consider these different types of trading restrictions separately (Jungmittag & Marschinski, 2020; Van der Marel & Shepherd, 2013). Such a separate assessment for each type of restriction shows more accurately where policy opportunities lie in order to reduce the restrictions on trade in services as efficiently as possible and thereby stimulate new investment projects.

Jungmittag & Marschinski (2020) note that restrictions on trade in services constitute a significant barrier to greenfield FDI. For the accounting, computer and architecture and engineering service sectors, they find statistically significant evidence of a negative impact. The explanatory force of the models generally improves if the subtypes of the STRI are used instead of the aggregated STRI total score.

A new kid in town: Restrictiveness Indicator measured by European Commission

At specific times (for the years 2006, 2012, 2017), the European Commission has collected detailed legal data on existing restrictions in certain service sectors. It has examined the requirements imposed at national, regional or local level, as well as all rules set by professional bodies, associations or organisations in the exercise of their statutory autonomy to regulate access collectively to a specific service activity. The European Commission thus aims to gain an overview of the remaining barriers in the internal market and to maintain visibility on the evolution of these restrictions over time.

It documented each barrier, noting whether it existed in the country and service sector concerned. If the barrier was present, a numerical score between 0 and 2 was awarded, with 0 representing a complete absence of barriers and 2 representing the full presence of a barrier. These scores were then used to calculate the average per sector and per country(European Commission, 2021).

The EC Restrictiveness Indicator data were recently made available by the European Commission. Only a few studies have been conducted hitherto into the relationship between the EC Restrictiveness Indicator and trade. In accordance with the gravity model of Monteagudo et al. (2012), a 10 percent reduction in trade barriers leads to a 1.5 percent rise in trade. Using Statistics Netherlands and EC data we also see a negative relationship between barriers and trade, although at first sight this is not a very strong relationship (Figure 5.5.2).

The EC Restrictiveness Indicator is often used to analyse the economic impact of the Services Directive. The Services Directive was introduced in 2006 with the aim of promoting trade and investment in services within the EU by eliminating unjustified regulatory and administrative barriers. The Services Directive seeks more particularly to eliminate unnecessary and severe barriers to trade in services in the single market. A significant number of barriers nevertheless remain and there are many exceptions (European Commission, 2021; Barendregt & Wijffelaars, 2017). Barbero et al. (2022) use econometric and modelling techniques to quantify the macroeconomic impact of reforms of regulation that eliminated barriers in the European internal market for services between 2006 and 2017. The results of the modelling simulations show that the regulatory reforms between 2006 and 2017 will lead to an increase in GDP and a rise in employment.

Role of firm characteristics

Trade barriers do not affect all service providers to the same degree. Firm size, productivity and previous export experience appear to be decisive factors in tackling trade barriers at the border and behind the border (Benz et al., 2020; Rouzet et al., 2017).

The impact of regulatory obstacles on export values is considerably less negative for larger firms, which indicates that some of these barriers represent fixed export costs that prevent smaller firms from expanding exports to foreign markets. Internal legal expertise and wider existing networks of business partners at home and abroad illustrate why larger firms can cope better with complex and challenging regulatory environments (Benz et al., 2020). Very productive firms are more likely to expand into more restrictive markets, while less productive firms will tend to focus on more open markets (Rouzet et al., 2017).

5.6 Econometric results

This Internationalisation Monitor has already reviewed various factors that play a role in determining the value of service export flows. In this chapter we have seen, for example, that virtual proximity, a larger economy and digital adoption skills in the destination country are positively correlated with the value of service exports to that country. At the same time, barriers such as those classified and quantified by the OECD and the European Commission, but also, for example, physical distance, have a negative effect. As has already been discussed, the characteristics of firms may play a role. In order to weigh the relative role of each of those determinants, it is important to incorporate them simultaneously in an econometric regression. The set-up of the regression models and the detailed econometric results of these regressions are described in Section 5.8.

It is still more difficult to export to more restrictive sectors

Even after taking into account various observable and non-observable differences between firms, service types, destination countries and years, we see that the composite index of barriers to trade in services as defined by the OECD has a significant negative correlation with the value of Dutch service exports. This means that the average Dutch service exporter exports more (a higher value) of a particular service if fewer restrictive barriers arise in that sector, all other things being equal. These results thus confirm that the correlations in Figure 5.5.1 hold up, even after we incorporate other factors in the regression model. These regression results are shown in Table 5.8.1, Column 1. The European Commission Restrictiveness Indicator, by contrast, shows at first sight that trade barriers have no significant effect on the value of trade in services (Table 5.8.1, Column 2). However, this may be because different groups of firms are impacted in different ways by trade barriers, so that the “net” effect of all these groups combined is practically zero. This does indeed prove to be the case here. For firms with relatively low labour productivity, the effect of trade barriers (as quantified by the EC Restrictiveness Indicator) on the trade value is indeed significantly negative (Table 5.8.1, Column 4). These results therefore show that firms with low productivity find it more difficult to overcome trade barriers than firms with high productivity. Using the OECD STRI, however, we do not see such differences between groups of firms.

Differences between firms and barriers play a key role

The results discussed above relate to the overall index compiled by both the OECD and the EC. As discussed earlier, these are combined indices that include various detailed barriers. However, we can also examine the impact of these detailed barriers on the trade value. The results are shown in Table 5.8.2, Columns 1 and 2. Our analysis shows that the negative effect of barriers as measured by the OECD is caused particularly by the barriers to competition.

Barriers to competition include the extent to which the government can curb the influence of foreign firms, for example by setting limits on the percentage of foreign ownership, but also, for example, the extent to which a foreign firm can protest against certain rules which, it considers, lead to unfair competition. The telecommunication sector in China is strictly regulated, for example. Barriers to competition are the principal form of trade restrictions in this sector (OECD, 2022a). Hence both foreign and domestic telecom firms find it difficult to compete against Chinese government corporations.

Using the EC Restrictiveness Indicator, we see in particular that legal form requirements play a major role in barriers to trade. In Austria, for example, it is possible for architects to set up a firm, but only certain forms of company are permitted, including the form of private limited company.

Notably there are also tariff requirements. Tariff requirements refer to certain rules that mean firms do not have complete freedom to set their own prices. Germany, for example, lays down the method used to set the fees charged by architectural and engineering firms (see box in Section 5.1). In that sense, prices are therefore regulated and market participants are impeded in their activities in the German market.

To what extent can these barriers be linked to market entry or ongoing operational activities as discussed in Section 5.2? Nordas & Rouzet (2017) and Andrenelli et al. (2018) divide the various types of barriers into categories, with restrictions on foreign entry, international mobility of people and “other discriminatory rules” relating to market access, while barriers to competition and regulatory transparency relate particularly to ongoing operational activities. This can explain why in our analysis the barriers to competition emerge as a significant barrier to service exports in pre-existing trade partnerships.

The various restrictions identified in the European Commission database that have a significant effect on exports of services are also probably more likely to occur behind the border. This distinction is not clear-cut, however. In the case of these “specific” barriers too, there is always a high degree of heterogeneity, for example between sectors. There are also similarities between the various types of restrictions, so a simple division into barriers to entry and barriers to operations is not always straightforward.

The other variables in the models show the expected pattern. The Netherlands exports significantly more to countries with a high GDP and to countries located closer by. The importance of a control for GDP can be seen when this variable is not included in the regression. The significant negative effect of the STRI index on the value of service exports then becomes insignificant. This means that countries that have relatively strict service sectors are economically larger. If we disregard this, the positive effect of the higher GDP is partly absorbed by the STRI variable that has a negative effect. The combination of these two variables then results in an insignificant STRI index effect.

5.7 Summary and conclusion

The attractiveness of foreign market opportunities drives firms to sell across the border. Firms face all kinds of barriers, however. Exporters of both goods and services have to deal with natural barriers, such as the geographic distance to the destination country, or differences in language and culture. Tariff measures at the border are also important in the case of trade in goods. Statistics Netherlands has conducted previous studies of these (see for example CBS, 2020b).

In this Monitor we focus specifically on service providers, who face barriers particularly from regulations intended to restrict activities in a particular market. These restrictions may impede not only market entry, as highlighted in the previous chapter, but also existing activities in the market concerned. In this fifth chapter the emphasis is on these existing  trade relationships and the extent to which they are shaped by trade barriers. The OECD and the European Commission have tried in recent years to document and quantify these restrictions and thereby give an indication for each country and service sector of how restrictive the particular service sector is.

In this chapter this information is linked to information on the export activities of a small, select group of large Dutch service providers. It became clear that these barriers did indeed have a significant effect on the value of service exports: higher restrictions go hand-in-hand with lower export values. This relationship holds if at the same time we check for other key determinants (firm, country or sector) of service exports.

This kind of empirical study into the extent to which trade barriers affect service exports remains scarce. That is particularly due to the fact that data on trade in services at the firm level are only available for a limited number of countries, but also because this type of trade barrier is much more difficult to document than, for example, information on import tariffs. This complex data situation for trade in services means that it is not straightforward, for example, to  look closely at the heterogeneity of firms, sectors or types of barriers, as is commonly done in analyses of trade in goods. Regarding future research on this theme, it is therefore important that more detailed data become available on trade in services and the barriers that arise in it. That will provide opportunities to gain greater insight into the specific mechanisms that restrict or impede firms doing business internationally.

5.8 Data and methods

The main data sources that form the basis of this chapter are the so-called response data. This is a sample survey conducted every quarter by Statistics Netherlands in which detailed information on trade in services is gathered for the largest 950 or so firms (see Table 5.2.1 and the box in Section 5.2 for further information). We link various business characteristics to this as well as information on barriers to trade in services. These are obtained in particular from CEPII, the European Commission and the OECD, which have already been discussed in this Monitor.

We use these data to measure the effect of various trade barriers on exports of services by means of the following comparison inspired by the literature.

Exportijdt = STRjdt + In(prodit + 1) + In(WPit) + impijdt + exp.goodijdt + foreignit + subsidiaryijdt + In(GDPdt) + In(distanced) + EUdt + eijdt

Where the exports by firm i and service j to country d in year t are explained by the following factors: a restriction index obtained from either the OECD or the EC (STR_jdt), the labour productivity of the firm, the number of employees, a dummy variable that states whether a firm also imports the service concerned, whether the firm exports goods, whether it is foreign owned and whether it has a foreign subsidiary in the destination country. We also control for the GDP and the distance to the destination country and whether it belongs to the European Union. For distance we use various measures, such as physical distance, virtual proximity, the time zone in which the country is located and the digital adoption capacity of the country (see also box in Section 5.6). In addition to these observable differences between firms, service types, destination countries and years, we also control for non-observable differences within these groups by means of firm, service, country and year fixed effects. The assumption is that these differences do not change significantly over time. This comparison is estimated by means of a pseudo poisson maximum likelihood (PPML) estimator in which standard errors are clustered at country level.

We also examine the extent to which exports of construction services, for example, are impeded by restrictions that apply in the construction sector in the destination country. This involves a more detailed identification than the one in Chapter 4. There we use the SBI of the firm as an indication of the type of service that the specific firm exports. In this section we actually know which service is exported to which country, so the barriers can be more closely linked to the service traded.

The results are shown in Tables 5.8.1 to 5.8.3. Table 5.8.1, Columns 1 and 2 show the results of the composite indices of the OECD and the European Commission, while Columns 3 and 4 interact this index with output. Table 5.8.2 shows the types of barriers involved in the composite indices. Finally, Table 5.8.3 shows the coefficients of different proxies for distance.

5.8.1 Econometric results, baseline
General effect of the various restriction indices
OECD STRI-3.057***
EC Restrictiveness Indicator-1.501
Effect per productivity class
Least productive firms-3.020**
Average productive firms-2.908***
Most productive firms-3.134***
EC Restrictiveness Indicator
Least productive firms-3.098**
Average productive firms-1.330
Most productive firms-0,723
Firm-specific factors
Labour productivity (ln)-0,0119-0,00351
Employed persons (ln)0.451***-0,02620.454***-0,0188
Imports dummy1.248***1.538***1.247***1.525***
Goods exports dummy0.233**0.368**0.235**0.361**
Foreign ownership dummy0,1380,01840,0970,0266
Subsidiaries in country i0.511***0.793***0.511***0.770***
Productivity class 2-0,0544-0,0975
Productivity class 3-0,00137-0,0614
Country-specific factors
GDP (ln)0.463***0.525***0.463***0.527***
Distance (ln)-0.463***-0.488**-0.463***-0.496**
EU dummy-0.703***0.445**-0.702***0.430**
Number of observations137,3978,302137,3978,302
t-statistics in brackets.
*p<0.1; **p<0.05; ***p<0.01
All model specifications have firm, service type and year fixed effects. Standard errors are clustered at country.

5.8.2 Econometric results, broken down by type of restrictions
Barriers to competition-8.358*
Other discriminatory measures-2.711
Regulatory transparency0,426
Restrictions on foreign entry-0,288
Restrictions on movement of people4.696**
EC Restrictiveness Indicator
Advertising restrictions-0,328
Authorisation requirements0,0645
Authorisation schemes applicable in case of temporary service provision-0,267
Legal form requirements-1.189***
Multidisciplinary restrictions-0,0716
Shareholding requirements0,358
Tariff requirements-0,929
Unavailability of electronic procedure to complete formalities-0,0868
Number of observations81,3708,302
t-statistics in brackets.
*p<0.1; **p<0.05; ***p<0.01
Firm- and country-specific control variables as in Table 5.8.1 have been included, but their coefficients are not shown here.
All model specifications have firm, service type and year fixed effects. Standard errors are clustered at country level.

5.8.3 Econometric results: distance
Distance (ln)-0.463***
Virtual proximity (ln)0,208
Time zone-0.0227**
Digital adoption index2.644*
Number of observations137,397129,684137,397137,397
t-statistics in brackets.
*p<0.1; **p<0.05; ***p<0.01
Firm- and country-specific control variables as in Table 5.8.1 have been included, but their coefficients are not shown here.
All model specifications have firm, service type and year fixed effects. Standard errors are clustered at country level.

5.9 Annex

5.9.1 Link between OECD service sector and CBS service types
OECD service sectorISIC Rev 4CBS SBICBS service type
Broadcasting591 + 60260SK1X, SK11Y, SK11Z, SH4
Motion pictures591591SK1X, SK11Y, SK11Z, SH4
Sound recording592592SK1X, SK11Y, SK11Z, SH4
Construction41 - 4341 - 43SE1, SE2
Computer62 + 6362 + 63SI2X, SI21Z, SH3, SI21Y, SI31, SI32
Distribution46 + 4746 + 47SJ34
Commercial banking6464SG1
Insurance651 + 652651 + 652SF11, SF12, SF13, SF2, SF3, SF41, SF42
Logistics cargo-handling52245224SC3G, SC13, SC23, SC3B3, SC3C3, SC3D3
Logistics customs brokerage52295229SC3G, SC13, SC23, SC3B3, SC3C3, SC3D3
Logistics freight forwarding52295229SC3G, SC13, SC23, SC3B3, SC3C3, SC3D3
Logistics storage and warehouse52105210SC3G, SC13, SC23, SC3B3, SC3C3, SC3D3
Road freight transport4923494SC3C2
Air transport5151SC22
Maritime transport5012502SC12
Rail freight transport4912492SC3B2

5.9.2 Link between European Commission service sector and CBS service types
European Commission service sectorCBS SBICBS service type
Accounting and tax advisory services692SJ212
Architectural services7111SJ311
Engineering services7112SJ312
Legal services691SJ211
Real estate agents68SJ35
Travel agencies791SJ35
Tourist guides799SJ35
Construction (general contractors)41 + 42SE1 + SE2
Construction (electricians and plumbers)4321 + 4322SE1 + SE2
Wholesale retail46SJ34

5.10 Literature

Andrenelli, A., Cadestin, C., Backer, De, K., Miroudot, S., Rigo, D. & Ye, M. (2018). Multinational production and trade in services. OECD Trade Policy Papers, No. 212. Paris: OECD Publishing.

Australian Government (2015). Barriers to Growth in Service Exports. Productivity Commission Research Report.

Barbero, J., Bengyuzov, M., Christensen, M., Conte, A., Salotti, S. & Trofimov, A. (2022). A general equilibrium analysis of the economic impact of the post-2006 EU regulation in the services sector. JRC Working Papers on Territorial Modelling and Analysis No. 03/2022 Seville: European Commission, JRC128322.

Barendregt, E. & Wijffelaars, M. (2017). De interne markt is een onvoltooid succes. ESB, 102(4754S), 73-76.

Benz, S. & Gonzales, F. (2019). Intra-EEA STRI Database: Methodology and Results. OECD Trade Policy Papers, No. 223. Paris: OECD Publishing.

Benz, S., Rouzet, D. & Spinelli, F. (2020). Firm heterogeneity in services trade: Micro-level evidence from eight OECD countries. The World Economy, 43(11), 2905-2931.

Berg, van den, M. & Franssen, L. (2021). NTM’s: een investering in kwaliteit? In S. Creemers, M. Jaarsma & J. Rooyakkers (Ed.), Internationalisation Monitor 2021, third quarter: Non-tariff measures: An investment in quality. The Hague/Heerlen/Bonaire: Statistics Netherlands.

Berg, van den, M., Boutorat, A., Franssen, L. & Mounir, A. (2022). Intermittent exporting: unusual business or business as usual? Review of World Economics, 1-26.

Bista, R. & Tomasik, R. (2017). Time zone effect and the margins of exports. The World Economy, 40(6), 1053-1067.

Boulatoff, C., İşcan, T. B. & Kotlyarova, Y. (2022). Does Distance Matter for Trade in Services? The Case of Interprovincial Trade in Canada. Open Economies Review, 33(1), 157-185.

Boutorat, A., Franssen, L., Mounir, A. & Berg, van den, M. (2019). Incidentele handelaren: wie zijn ze en wat onderscheidt ze. In M. Jaarsma & A. Lammertsma (Ed.), Internationalisation Monitor 2019, second quarter: Patterns in trade behaviour. The Hague/Heerlen/Bonaire: Statistics Netherlands.

CBS (2020a). Internationalisation Monitor 2020, fourth quarter: Trade policy: Tariffs & trade agreements. The Hague/Heerlen/Bonaire: Statistics Netherlands.

CBS (2020b). Internationalisation Monitor 2020, third quarter: International trade in services and R&D. The Hague/Heerlen/Bonaire: Statistics Netherlands.

CBS (2021). Internationalisation Monitor 2021, third quarter: Non-tariff measures. The Hague/Heerlen/Bonaire: Statistics Netherlands.

Chung, J. (2011). The Geography of Global Internet Hyperlink Networks and Cultural Content Analysis. Dissertation, University at Buffalo.

Crozet, M., Milet, E. & Mirza, D. (2016). The impact of domestic regulations on international trade in services: Evidence from firm-level data. Journal of Comparative Economics, 44(3), 585-607.

Dincer, N. N. & Tekin-Koru, A. (2020). The effect of border barriers to services trade on goods trade. The World Economy, 43(8), 2093-2118.

Egger, P. & Shingal, A. (2021). Determinants of services trade agreement membership. Review of World Economics, 157(1), 21-64.

European Commission (2022). Access2Markets Guide for export of services.

Hellmanzik, C. & Schmitz, M. (2016). Gravity and international services trade: the impact of virtual proximity. ETSG 2016 Paper, Helsinki.

Jayasooriya, S. P. (2021). Bayesian Gravity Model for Digitalization on Bilateral Trade Integration in Asia. ADBI Working Paper 1232. Tokyo: Asian Product development Bank Institute.

Jozepa, I., Ward, M. & Harari, D. (2019). Trade in services and Brexit. Briefing Paper, Number 8586. House of Commons Library.

Jungmittag, A. & Marschinski, R. (2020). Service Trade Restrictiveness and Foreign Direct Investment: Evidence from Greenfield FDI in Business Services. JRC report, EUR 30399 EN. Luxembourg: Publications Office of the European Union.

Kimura, F. & Lee, H. (2006). The Gravity Equation in International Trade in Services. Review of World Economics, 142, 92-121.

Kox, H. & Lejour, A. (2005). Regulatory heterogeneity as obstacle for international services trade. CPB Discussion Paper, No. 49. The Hague: CPB Netherlands Bureau for Economic Policy Analysis.

Laagland, F. (2020). Bindende minimumtarieven voor echte zelfstandigen: een analyse van Nederlands en Europees recht. Arbeidsrechtelijke Annotaties, 14(3), 26-49.

Loungani, P., Mishra, S., Papageorgiou, C. & Wang, K. (2017). World Trade in Services: Evidence from A New Dataset. IMF working paper, WP/17/77.

Marel, van der, E. & Shepherd, B. (2013). Services Trade, Regulation and Regional Integration: Evidence from Sectoral Data. The World Economy, 36(11), 1393-1405.

Monteagudo, J., Rutkowski, A. & Lorenzani, D. (2012). The economic impact of the Services Directive: A first assessment following implementation. Economic Papers 456. Brussels: European Commission.

Nordås, H. K., Miroudot, S. & Lanz, R. (2008). Entry barriers and the extensive margin: Estimating trade restrictiveness from trade flows and lack thereof. OECD Technical Workshop on Trade Barrier Assessment Methodology. Paris: OECD.

Nordås, H. K. & Rouzet, D. (2017). The impact of services trade restrictiveness on trade flows. The World Economy, 40(6), 1155-1183.

OECD (2022). Services Trade Restrictiveness Index Regulatory Database. [Database]. Accessed on 19 May 2022.

Rouzet, D., Benz, S. & Spinelli, F. (2017). Trading firms and trading costs in services: Firm-level analysis. OECD Trade Policy Papers, No. 210. Paris: OECD Publishing.

Strick (2019). Dwingende wettelijke regelgeving m.b.t. honorarium architecten en ingenieurs in strijd met Europees recht. Kleve, Germany: STRICK Rechtsanwälte & Steuerberater.

Tinbergen, J. (1962). Shaping the World Economy. New York: The Twentieth Century Fund.

Walsh, K. (2006). Trade in Services: Does Gravity Hold? A Gravity Model Approach to Estimating Barriers to Services Trade. Discussion Paper, No. 183. Dublin: Institute for International Integration Studies.

WTO (2019). World Trade Report 2019: The future of services trade. Geneva: World Trade Organization.

1) A foreign investment in a foreign branch that is yet to be established from scratch.