This paper constructs a theoretical framework to analyze the impacts of deregulation on
service exports using the monopolistic competition model developed by Krugman (1980).
The framework entails two core claims. First, the positive effects of deregulation on service
exports are more prominent in the differentiated or knowledge-intensive service sectors such
as insurance, business, and cultural and recreation sectors than those in the standardized ones
such as travel and communication sectors. Secondly, the trade-stimulating impacts of
deregulation in exporting country are of larger magnitude than those of deregulation in
importing country. We then empirically test and prove these arguments using the Hausman-
Taylor estimation method and the World Bank’s STRI dataset. From these results, some
policy implications are drawn for service industry development.