An empirical analysis of the causal nexus between service trade and income

Service trade has been growing at a higher rate than merchandise trade since the early 1980s. Using an instrument for service trade constructed from trading pair geographical information for 101 countries over the period from 2000 to 2010, this paper estimates the causal effect of service trade on income. The results reveal that a one percentage point increase in service trade increases per capita income by at least 0.1%.