Service Trade, Regional Specialization, and Welfare

How much does trade in services affect regional production specialization and welfare? Using unique
Canadian trade data, we document that the size of inter-provincial service trade is comparable to that of
good trade, and that net exports of services are highly correlated with the value-added share of tradable
services across provinces. With a spatial model featuring domestic and international trade, we quantify
the effects of service trade. Our results highlight that domestic service trade significantly promotes
regional specialization, with heterogeneous welfare gains that reduce regional disparities. Conversely,
international service trade generates more uniform welfare gains across provinces.