The European Refugee Crisis and Services Trade in Greater Copenhagen

Abstract: This paper analyzes trade in services’ vulnerability to exogenous shocks in order to contribute to the often-neglected area of international trade in services. It is accomplished by examining how Sweden’s border measures during the European refugee crisis affected services trade between Sweden and Denmark. The impact of the border measures is estimated with a difference-in-differences model: Sweden’s trade flows with Denmark are compared to a counterfactual scenario, which is created by utilizing data on Sweden’s trade flows with Norway and Finland. All types of services are allocated to and analyzed through three of the four GATS modes of supply. The results do not find that the border measures hurt services trade between Sweden and Denmark. On the contrary, it finds a positive impact on consumption abroad, explained by the boost cross border travel received due to the sudden increase of publicity. The non-negative impact is further explained by the deep integration in the Greater Copenhagen Area and the temporary expectations of the border measures. Alternatively, the result indicates that bilateral statistics on trade in services or the allocation of services categories to the modes of supply is inadequate – highlighting the need for more detailed data and further research in the area.