The Impact of Mode 4 on Trade in Goods and Services

This paper estimates the impact of liberalization of temporary movements of individual service suppliers on trade in goods and services. In particular, the paper looks at the impact of the so-called forth mode to provide a service on trade in services under the other three modes: cross-border service supply (Mode 1), consumption abroad (Mode 2) and commercial presence abroad (Mode 3). Estimates are obtained using a gravity model of trade augmented for a measure of temporary movements of service suppliers. Estimates of the size of a country’s Mode 4 trade in services are based on specific information regarding the number of temporary foreign workers occupied in the service sector and their estimated average earnings, thus overcoming the limitations of traditional measures of Mode 4 based on remittances or compensation for employees. We find a positive and significant effect of temporary movements of service providers on merchandise trade and services trade under Mode 1 and 3. No significant relationship is found between services trade under Mode 2 and Mode 4.

No: ERSD-2004-07


Marion Jansen and Roberta Piermartini — WTO

Manuscript date: November 2004

Key Words

Mode 4, trade negotiations, trade in services, FDI

JEL classification numbers  

F13, F23, F29


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This is a working paper, and hence it represents research in progress. This paper represents the opinions of individual staff members or visiting scholars, and is the product of professional research. It is not meant to represent the position or opinions of the WTO or its Members, nor the official position of any staff members. Any errors are the fault of the authors. Copies of working papers can be requested from the divisional secretariat by writing to: Economic Research and Statistics Division, World Trade Organization, rue de Lausanne 154, CH 1211 Genève 21, Switzerland. Please request papers by number and title.

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