Has the EU’s Single Market Program led to Deeper Integration of EU Services Markets?

This paper empirically evaluates whether the EU’s Single Market Program has led to deeper integration of EU services markets. It adopts a gravity-type estimation framework to search for an EU effect in data on balance-of-payments trade in services and foreign direct investment. In contrast to previous gravity estimations on bilateral services trade, the current study employs a theory-consistent estimation equation with time-varying country fixed effects and, in selected estimations, also pair fixed effects to account for unobserved country-specific and pair-specific determinants of trade. The results suggest that total services trade flows and FDI stocks within the EU are up to one-third higher compared to the rest of the world, although there are important variations across services sectors.