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This paper examines how policy-induced supply-chain shocks affect firms' performances, using the UK-EU Trade and Cooperation Agreement (TCA) as a source of exogenous variation. Using UK microdata on firm-level goods and services trade linked to firm's outcomes and employer-employee records, we document a sharp decline in firms’ imports of intermediate goods from the EU after 2021. We then show that firms more exposed to EU input sourcing experience declines in employment and sales, with corresponding effects on workers’ hours and pay. These impacts are heterogeneous across occupations, with larger losses concentrated among lower-skilled roles. Interestingly, we find that firms' services activities play an important role in mediating the impact of GVCs disruptions. On the one hand, these firms experience smaller declines in intermediate inputs imports; on the other hand, they experience stronger negative reactions to the overall GVC shock.

This study provides new empirical evidence on the direct and indirect impact of services offshoring on local labour market employment and wages. I construct a unique firm-level dataset locating offshoring flows at the postcode level in the UK between 2000-2015. Exploiting quasi-random variation in firms' services offshoring across local labour markets, I find positive employment and wages elasticities to services offshoring within local labour markets. Spillovers from offshoring raise demand for labour for firms within a local labour market, including those not involved directly in services offshoring. Finally, I show that services offshoring increases employment and wage dispersion within local labour markets.

Services account for one-third of global trade, yet little is known about the impact of trade restrictions on services trade. To make progress in this area, it is crucial to understand through which Modes services are traded (cross-border, movement of people, foreign investment or consumption abroad) and how firms substitute among these Modes. We provide novel micro-level evidence on firms' mode choices, combining detailed data on UK firms' trade and affiliates' sales. We also estimate the substitution between trade Modes using Brexit as an exogenous shock, finding that UK firms increasingly relied on local affiliate sales to serve the EU market after 2016. This shift protected firm-level services exports from expected higher trade barriers after Brexit, but at the cost of lower domestic employment.

The literature commonly confines the impact of corporate taxes on cross-border trade to a shift of tax revenues to tax havens. Using corporate tax changes, event studies, and a structural gravity framework that allows for the estimation of country-specific policies, we provide novel insights into the trade elasticity. We first provide evidence that trade in goods and services react in different ways to changes in corporate taxation, reflecting the intangible nature of services. Leveraging a comprehensive panel dataset and tax reforms, we present evidence of a positive elasticity to tax changes that depends on the initial tax differential between countries. We show that the effect of tax reforms on trade in services is not confined to tax havens and highly heterogeneous across types of services. Our results emphasize the relevance of corporate tax reforms beyond countries classified as tax havens and the necessity of addressing tax gaps across countries.

Corporate tax cuts can improve firms' international competitiveness, but they can also create incentives for profit shifting. This paper quantifies the relative importance of these two forces in international services trade. Using comprehensive German firm-level data linking services imports to multinationals' worldwide affiliate networks and detailed service categories, we exploit corporate tax reductions in partner countries between 2009 and 2019. A staggered difference-in-differences design shows that tax cuts in low-tax partners increase German firms' services imports, with markedly heterogeneous responses across organisational structures. The effect is strongest for multinationals with an affiliate in the reforming country, consistent with an additional tax-optimisation response beyond the common real-activity channel. We uncover a further margin of tax optimisation specific to services: following a tax cut, multinationals with local affiliates expand the set of services they import, consistent with artificial intra-group invoicing rather than genuine additional activity. A model-based quantification indicates that artificial invoicing can account for a sizeable share of intra-group services trade and becomes increasingly important as bilateral tax differentials widen.

This paper examines how explicitly accounting for services changes the measurement of gains from trade. Combining transaction-level VAT data with firm and worker records for Denmark, we find that services are central to understanding the extent and nature of trade integration. Once services are taken into account, many more firms are revealed to be internationally active, and firms trading both goods and services account for a disproportionate share of employment and turnover. Goods-only measures also lead to a sizable understatement of firms’ import and export exposure, including in manufacturing, and miss important differences in labour intensity and workforce composition across trading firms. Motivated by these facts, we extend a standard revealed comparative advantage framework to allow for hybrid production, where firms trade goods and services either jointly or separately. Using cross-country trade data, we show that services are a major source of comparative advantage in advanced economies. Using Danish firm-level data, we further show that comparative advantage partly arises from service activities performed within firms classified in non-services sectors, particularly when services are traded jointly with goods. These findings suggest that the gains from trade are more intangible and more unevenly distributed across firms, sectors, and workers than conventional goods-based statistics imply.

Climate change is reshaping global maritime trade routes: melting Arctic ice opens new passages, while droughts and extreme weather disrupt traditional corridors like the Panama Canal. We build a new dataset of climate-adjusted shipping distances and estimate a structural gravity model to predict resulting trade flows, finding that Arctic melting raises global trade by roughly 1.8% while cutting distances up to 8%. We then embed these distance changes in an Eaton-Kortum framework linked to the Martin-Mayer-Thoenig conflict model, showing that climate-driven shifts in bilateral dependence and multilateral openness can simultaneously pacify some country pairs and destabilize others.

Martina Magli