Abstract: Service trade is playing a major part of international trade. This paper takes China, Japan, South Korea and India as examples. Based on the empirical evaluation of the non-actionable factors such as location, institution and culture, as well as actionable factors such as the international trade agreements in which the four countries participate, this study finds that service trade within the four countries is about two-and-a-half times higher than that predicted by gravity models. This may result from their geographical proximity, which leads to many similarities in culture, religion and belief, but a detailed analysis of the four countries’ policy frameworks, trade agreements, institutions and cultural factors shows that these cannot explain the bias within the Asian countries. The study argues that the international integration of service trade depends on deep-seated institutional and cultural factors, so the greatest benefits may be generated among countries with common cultural and physical characteristics, even within an organization under a perfect trade agreement.

Key words: service trade, trade agreement, institutional distance, STRI indices