Distance in International Service Trade

This paper identifies the determinants of service trade with gravity model using the most recent bilateral service trade dataset. It is found that distance has significant trade-inhibiting effects on service trade flow as well as on merchandise trade. To understand the driving force behind the negative coefficient of distance variable in the service trade, we investigate the relationship between service and merchandise trade. The complementary relationship reveals that more than half of the negative coefficient in service trade is driven by merchandise trade pattern and the complementarity is found to be stronger in high income group and weaker in low income group.