Effects of Service Industry Liberalization on Exports

The service industry opening can bring about a large welfare effect. However, the Chinese government basically adheres to a more or less conservative service industry opening strategy. Therefore, we try to find out the potential effects of service industry opening from a policy perspective. This paper quantifies the information from “foreign investment industry guidance catalogue” as a FDI liberalization index, used to measure the Chinese government’s attitude towards foreign investment. Furthermore, we construct the upstream and the downstream foreign restriction index, and examine the impact of foreign investment liberalization on China’s export and value-added exports through empirical analysis. The results show that: reduction of the restrictions on foreign investment can promote China’s the export of total industry and services, and enhance the competitiveness of exports. Whether the services industry played as an upstream or downstream one, service industry opening can effectively promote its upstream and downstream industry export. Service industry liberalization has strong externality, which means its export effects on upstream and downstream industries are significantly higher than on itself. Introduction In view of the imperfect development of the service industry, China has been worried that the opening up of the service industry may have a huge impact on the development of domestic services. Therefore since 2001, the opening of the service industry is relatively slow, which can be seen from the policy documents published by the Chinese government. In general, the policy focus of China’s service trade is the service “going out”. The main objective of the service industry opening up is to attract foreign investment, knowledge and regime in order to improve the quality and international competitiveness of the domestic service industry. In fact, by observing the process of opening up the manufacturing industry, we find that foreign investment have brought positive changes on China’s industrial structure, market structure and technical level. Does the service industry have the same characteristics? Surprisingly little is known about policies that affect international trade in services. Previous analyses have focused on policy commitments made by countries in international agreements but these commitments do not in many cases reflect actual policy (Borchert et al.,2012). OECD has constructed a Services Trade Restrictiveness Index to characterize policy restrictions from perspectives of barriers to competition and public ownership,restrictions on foreign ownership and other market entry conditions, restrictions on the movement of people and other discriminatory measure and international standards (OECD, 2013). The STRI are found to be a statistically significant determinant of manufactured exports performance, for restrictions on FDI impede the spread of service technology between countries (Hoekman and Shepherd, 2017). Harding and Javorcik(2011)found that foreign direct investment could effectively promote the export quality of the host country. In fact, domestic service content contributes a significant amount of the share of manufacturing exports (OECD, 2014). Du et al. (2014) used the data of China’s manufacturing enterprises to examine the technology spillover of foreign investment in China from horizontal and vertical spillovers effect. Other studies pay attention to the service industry. Clemes et al. (2016) used the data from 1994 to 2011 to construct a single structural growth equation and a simultaneous equation to measure the spillover effects study. The service sector not only had a positive spillover effect on manufacturing growth, but also positive for per capita GDP growth enhancement. 9th International Economics, Management and Education Technology Conference (IEMETC 2017) Copyright © 2017, the Authors. Published by Atlantis Press. This is an open access article under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/). Advances in Economics, Business and Management Research, volume 48