Services Trade Restrictiveness Research Articles

The impacts of policy restrictions on trade in services

ABSTRACT The objective of this paper is to estimate how different types of policy restrictions affect trade in services. We employ the Service Trade Restrictiveness Index (STRI) database and the International Trade in Services Statistics (ITSS) provided by the OECD to compile a sample encompassing 15 service sectors across 48 countries for the period from 2014 to 2018. The estimated results indicate that more restrictive regulations impede international service trade in terms of both the value of trade (intensive margin) and the probability of trade (extensive margin). We also find that the negative impact of policy restrictions on trade does not always increase with increasing restrictiveness. While moderate policy restrictions can facilitate international trade in services, stricter regulations impede it. Finally, the impact of policy regulations on service trade depends on the type and objective of restrictions. Regulations that are discriminatory or target foreign firms tend to reduce trade values, whereas non-discriminatory regulations related to policy transparency enhance service trade between countries.

Service sectors and trade through a digital medium: a modified gravity approach

ABSTRACT Given the increasing role played by services delivered through online platforms, this study is a first to undertake cross-sectoral examination of the trade performance of nine service sectors exploring only the digitally delivered components of these. The article makes two main contributions. First, in the absence of bilateral trade data, it develops gravity-like indices using a methodology to capture the influence of common variables used in the gravity literature. Sector-level unilateral import data on the WTO, GATS mode 1 of service delivery or cross-border trade, which is largely synonymous with digital trade, is drawn from the relatively new OECD-WTO-TiSMoS database. Next, the constructed gravity-like variables along with an index of the importer’s services trade restrictiveness, the level of internet penetration of the importing economy and their interaction are examined across the said sectors using a panel of 50 countries for the years 2014–2017. The findings of the constructed gravity variables support earlier literature using bilateral service trade data. The outcomes of the interactions reveal that the trade dampening effect of larger service trade restrictions is somewhat mitigated by deeper internet penetration in consumer services like education in contrast to others like insurance & financial services which are usually producer services.

The Role of Digital Services Trade Restrictiveness in Exports: Before and During COVID–19

Digital technology has penetrated various fields, including international trade. This study aims to analyze how barriers/openness to trade in digital services affected exports before the COVID–19 pandemic (2015–2016) and during the pandemic (2019–2020). Based on the Gravity model, exports seem to be influenced by digital services trade restrictiveness, including infrastructure and connectivity restrictions (X1), electronic transaction restrictions (X2), and other restrictions (X3). The panel data regression equation was used to analyze data from various countries (European 17 countries, Asian 8 countries, and Latin American 3 countries) sourced from OECD Statistical Data. The selection of sample countries was based on data availability and homogeneity. The results showed that the effect of digital services trade restrictiveness on exports was low before the pandemic and increased during the pandemic era. Prior to the pandemic, restrictions on electronic transactions had a weak and negative impact on exports; meanwhile, during the pandemic, all restrictions impacted exports, except for other restrictions. In the pandemic era, restrictions on infrastructure & connectivity had a negative impact, but restrictions on electronic transactions had a positive impact on exports due to a decline in global exports and several countries reducing restrictions on electronic transactions.

The Role and Impact of Cross-Border Data Flows in International Business Digital Trade

Abstract Data is an important production factor in the era of the digital economy, and cross-border data flow is a prerequisite for digital trade. The Digital Services Trade Restrictiveness Index (DSTRI) is the basis of this paper’s research on the impact of cross-border data flow on digital trade. Firstly, cross-border data flow and digital trade are refined into cross-border data flow restrictive measures and digital service trade, and the mechanism of cross-border data flow restriction on digital service trade is investigated. Then, the impact model is constructed based on the gravity expansion model, the variable selection is carried out, the model variables are tested from the perspective of Pearson correlation and multicollinearity, and the optimal regression model is selected. Finally, baseline regression results are derived based on the model, and heterogeneity analysis and robustness tests are conducted. Cross-border data flow restrictions have a correlation coefficient of −2.176 with total digital services, and they have both negative and positive effects on the total trade in digital services. The total trade in digital services in DSTRI is negatively impacted by all policy areas of restrictions, which suggests that restrictions in any policy area can hinder the development of digital trade. When conducting the robustness test, cross-border data flow restrictions still have a significant inhibitory effect on digital services trade, which is consistent with the results of the benchmark regression, indicating that the results of the benchmark regression in this paper are reasonable and valid.

Impact of digital services trade restrictiveness on manufacturing export efficiency

ABSTRACTBased on the application of the stochastic frontier analysis (SFA), this article examines the impact of digital services trade restrictiveness (DSTR) on the total export efficiency and domestic value-added (DVA) export efficiency of manufacturing industries in 46 economies from 2014 to 2019. Results show that DSTR in exporting economies have a negative impact on all types of export efficiency, whereas DSTR in importing economies have a negative impact solely on the efficiency of total exports and final goods exports. Further researches indicate that the impact of DSTR is mitigated in exporting economies with larger information and communication technology (ICT) infrastructures, such as international bandwidth and mobile cellular. From the perspective of multiple policy areas, the DSTR of infrastructure connectivity, electronic transactions, and other barriers reduce the total export efficiency. However, only the DSTR of these areas in exporting economies significantly affect DVA export efficiency. Overall, our findings can inspire economies to adopt more precise and scientific trade policies while participating in the governance of digital services trade and supporting the growth of higher-quality manufacturing exports.

Services in the India-EU free trade agreement

This paper analyses the proposed free trade agreement (FTA) between EU and India focusing on services trade. Based on the text published by the European Union, it uses the OECD STRI simulator to calculate the preference margins implied by the agreement and next predicts the impact on services trade flows using a general equilibrium structural gravity analysis. I find that the preference margin on the Services Trade Restrictiveness Index (STRI) for Indian exports to the EU is between four and eight basis points depending on the sector, while for EU’s exports to India the preference margin is between 10 and 35 basis points. The predicted effect is more than a doubling of EU services exports to India, while India’s services exports to the EU would increase by about 50%. EU’s trade with the rest of the world would not change much, while India’s exports to the rest of the world would contract by about 3%. Real services output would not change much in the EU or India. Lifting trade restrictions in the telecommunications sector is the most important policy area for facilitating services trade. About half of the predicted export expansion is driven by reforms to domestic regulation.

Financial services trade restrictions and lending from an international financial centre

Financial services trade restrictions and lending from an international financial centre

Service trade restrictiveness and foreign direct investment—Evidence from greenfield FDI in business services

AbstractWe study the impact of service trade restrictions on bilateral greenfield FDI projects in four business services sectors within a gravity model framework. Project level FDI data for 43 destination countries and up to 41 source countries spanning the years 2014–2020 stems from the fDi Markets database and restrictions from the OECD's Service Trade Restrictiveness Index (STRI). Using a negative binomial estimator to explain the number of bilateral FDI projects, we find that service trade restrictions represent a significant barrier for greenfield FDI. In three out of four business services, we obtain statistically significant evidence of a negative effect of the compound STRI level. Using three sub‐components of the index (restrictions to foreign entry, restrictions to the movement of people, other service trade restrictions) generally improves the explanatory power of the models. To illustrate potential magnitudes, we simulate how the number of expected FDI projects would increase in response to a hypothetical policy reform reducing relevant restrictions by 50%. We find average increases across the destination countries ranging between 20% and 104%, with a strong dependence on which business service sector is considered and whether or not the FDI projects only involve countries of the European Economic Area (EEA).

The Regulatory Impact on Services Trade in Korea

Purpose – This study aims to analyze the effect of Korea's Services Trade Restrictiveness Index (STRI) and STRI Heterogeneity Index (HG) on Korea’s services trade.
 Design/Methodology/Approach – Using the Poisson Pseudo Maximum Likelihood (PPML) model, this study analyzes the impact of STRI and STRI HG provided by the OECD for 26 countries on Korea’s services trade (imports). The reason for using PPML is that first, a consistent estimator can be obtained regardless of the error term’s distribution. Second, if there is net-zero services trade in the data, sample selection bias can occur as the zero-trade data is excluded from the analysis when using ordinary least squares (OLS).
 Findings – After converting the STRI and the STRI HG into a single index through principal component analysis (PCA), results show that the STRI is not statistically significant, but the STRI HG shows a statistically significant negative (-) sign in all analysis models. This means that the greater the STRI HG with Korea's trading partners, the more negative the impact on services trade, which implies that even if the level of services restrictiveness is low, services trade volume will reduce as regulatory coherence with trading partners decreases.
 Research Implications – Whereas previous studies primarily focused on major advanced countries such as OECD nations or specific service industries, this study analyzes the impact of the services trade restrictiveness on services trade for Korea and each services sector. In addition, existing studies perform cross-sectional analyses due to data availability, whereas this study reflects changes in services restrictiveness levels over time by constructing panel data for 2014–2019.

Digital trade barriers and export performance: Evidence from China

AbstractThis paper investigates how Chinese manufacturing exports respond to destination countries' digital trade barriers. Using Chinese Customs data from 2014 to 2018 and data on countries' digital service trade restrictiveness by the OECD, we find that Chinese total manufacturing exports drop by 2.32%, or $30.92 billion, due to the increase in destination countries' composite digital trade barriers from 2014 to 2018. A further decomposition shows that the reduction is mostly explained by the decrease in export quantity, with export prices remaining relatively unchanged. Moreover, digital trade barriers decrease Chinese exports not only by depressing the exports of surviving products but also by reducing the exporting possibility of new entering products and increasing the risk of products' exiting. The heterogeneity analyses show that a favorable institutional environment helps alleviate the negative effects and that exports of high‐tech products are less sensitive to digital trade barriers.

The Services Trade Restrictiveness Index: Applications in Quantitative Assessments of Trade Agreements

The Services Trade Restrictiveness Index: Applications in Quantitative Assessments of Trade Agreements

Legal services global market: current state and development prospects

The article answers the question: what are the distinctive features of the global legal services market in the context of globalization, as well as what place and role it occupies in international trade and trade policy? The study is divided into 3 parts. The first part structures the main theoretical aspects concerning the legal services world market: the concept and classification of legal services, forms and methods of international trade in legal services. The second part analyzes the market indicators of the global legal services market, characterizes the main problems and trends in its development. The place and role of Russia in the global legal services market are revealed. The third part deals with the foreign trade policy issues, mechanisms for protecting the internal market. Special attention is paid to the analysis of the Services Trade Restrictiveness Index for legal services. The mechanism of countries foreign trade policies influence on the British legal services sector is illustrated in the context of Brexit.

On the sensitivity of trade costs to services trade restrictions†

AbstractServices constitute a significant part of GDP and overall trade in modern economies, but little is known about the magnitude of its obstacles. Great effort has been made to establish measures of services trade frictions on the part of the Organization of Economic Cooperation and Development (OECD) and the World Bank. A customary way of using these measures is to employ them in log‐linear regressions to gauge their effect on services trade flows. This may be problematic to the extent that these measures do not capture ad valorem (tariff type price increasing) trade costs. Hence, it is natural to believe that available services trade cost measures may have a nonlinear impact on services trade flows. The present paper documents that this is the case, using nonparametric estimates to quantify the direct impact of important trade cost measures captured by the Services Trade Restrictiveness Index of the OECD on cross‐border services transaction costs and trade.

Digital Trade Enablers and Barriers in the European Union

The purpose of this paper is to research the indicators of digital development in the EU that are preconditions for development of digital trade and also to confront them with the barriers for cross-border digital trade. Thy hypothesis is that countries differ in the digital society development that can be burden in their participation in digital trade activities. The preconditions are measured by comparing indicators/indexes that regards the e-commerce and/or to digital trade (i.e. B2C e-commerce index;Network readiness index, internet users, etc.) while the barriers are measured by Digital trade restrictiveness index and Digital Services Trade Restrictiveness Index. The analysis is focused to EU member states which are divided on two groups: EU14 (EU-15 - UK) and EU13 (new member states). The main findings indicate the EU member states are very heterogeneous due to the ICT development, and also, unexpectedly, some of the EU members put high restrictions for carrying out digital trade. The Netherlands, Sweden, Finland, Denmark and Germany are the best performers in digital society development. At the same time, France and Germany are the most restrictive EU members. For the efficient exploitation of the ICT in conducting the trade activities, the EU should overcome the differences in regulatory framework of the member states but also it should: promote the investments in adequate infrastructure and skills and help businesses to be present on the digital platforms.

The Significance of Services and Data in Global Value Chains

Global value chains (GVC) are undergoing a transformation as business focus on building resilience. Services and data are already adding value to GVC, particularly manufacturing GVC. Global data flows and digital technologies such as cloud computing and AI enable growth in digitally enabled service exports and further opportunities to add value to manufacturing GVC. Moreover, services-only GVC are evolving as businesses use digital services and technologies sourced globally. • All countries have some comparative advantage in services and as GVC become increasingly services driven and rely on data, new opportunities for GVC participation by developing country and small and medium sized enterprises (SMEs), are emerging. As manufacturing GVC mature, served used are increasingly being sourced globally as business seek best-in-class inputs to maintain overall competitiveness. Yet, services trade barriers remain high – higher than for goods. In addition, countries are increasingly restricting global data flows and requiring data localization. There is also the risk that divergent standards in areas such as 5G, a technology which will underpin new digital services and GVC, will create additional barriers. Trade policy has an important role to play in supporting growth in services and data in GVC. Trade policy should also priorities addressing barrier to services trade and data flows. The failure of the WTO in further liberalizing services trade has had the perverse effect that for many countries services restrictions are becoming the key barriers to growing trade in manufactured goods. Services trade restrictions are also higher in developing countries, placing them at a disadvantage when it comes to participating in GVC.

Services trade in the ASEAN region and participation in GVCs

This paper documents the importance of trade in services for global value chain participation in the ASEAN region. Using newly created data on GVCs as well as a new database on the services trade restrictiveness index to connect international trade policies in services to participation in GVCs, we show that restrictions on trade in services are detrimental for backward participation in GVCs and that such restrictions are harmful to ASEAN members when compared to other countries in the data set. Also, we show that services trade restrictions are especially detrimental to ASEAN countries when such backward integration is connected to forward participation, hence, central positions in GVCs. Restrictions on trade in services slow down the upgrading of value chain positions, which calls for policy actions to follow up trade liberalization in industrial products with a new round of lower restrictions on services trade.

The impact of services trade restrictiveness on food trade

This paper examines the effects of restrictions in logistics, transportation, distribution, finance and other business sectors on food trade. We use a gravity model with panel data from 2014 to 2018 across 36 OECD countries, OECD indices of individual country restrictions and regulatory differences by country pair to capture the level of restrictions in these sectors. The results suggest that higher restrictions in the logistics and transport sector lead to lower exports of food commodities. Also, restrictions in the financial and other business sectors are associated with lower imports. Interestingly, restrictions in the distribution sector have positive and significant effects on both exports and imports of food products. The sectors most affected are food, live animals and perishable products (milk, eggs and meat). The regulatory disparity has a significant negative impact on food trade. This impact decreases when the exporter country is closed to service providers. The deregulation or harmonization of these measures would be highly beneficial to food trade.

Services Trade Policies and Economic Integration: New Evidence for Developing Countries

AbstractThis paper applies machine learning to recreate to a high degree of accuracy the OECD's Services Trade Restrictiveness Index (STRI) to provide quantitative evidence on the restrictiveness of services policies in 2016 for a sample of developing countries, using regulatory data collected by the World Bank and WTO. Resulting estimates are used to extend the OECD STRI approach to 23 additional countries, producing what we term a Services Policy Index (SPI). Converting the SPI to ad valorem equivalent terms shows that services policies are typically much more restrictive than tariffs on imports of goods, in particular in professional services and telecommunications. The SPI has strong explanatory power for bilateral trade in services at the sectoral level, as well as for aggregate goods and services trade.

Global value chains and service liberalization: do they matter for skill-upgrading?

ABSTRACT This study attempts to assess the effect of Global Value Chains (GVCs) and service liberalization on skill-upgrading. It provides a bridge between two active literatures on GVCs and service liberalization. Using comprehensive firm-level data from the World Bank Enterprise Survey, the contribution of this paper is twofold. First, it focuses on the effect of GVC integration on skill-upgrading in the presence of service restrictions. Second, it uses firm-level data on 141 developing economies. Our main findings suggest that integration in GVC results in skill-upgrading whilst service trade restrictions are associated with skill-downgrading. We argue that more restricted services weaken the channels by which GVC stimulates the process of skill-upgrading. Therefore, skill-upgrading resulting from GVC participation is more pronounced when services are liberalized. Our results remain robust to any change in the measure of service protection, the measure of skill-upgrading and when we control for the endogeneity of GVCs.

Trade in Services in the European Union

Services dominate in creation of value added in national economies, especially in developed countries and they have growing trend in developing (emerging) economies. They cover four modes of trade (according to GATS), that makes their calculation complex and a part of services is hidden in the value of production/trade of manufactured goods. Their importance in foreign trade, despite the increasing trend, is still three times smaller that the value of trade in goods, but also it is under-valuated. This paper explains specific characteristics of services foreign trade, provides analysis of structure of services trade but also pointed the limitation of wider trade expansion (i.e. liberalization of trade). The analysis employ statistical tools and secondary data and covers the EU member states. The EU is very important player in the global arena and it is net exporter of services, where richer member states are oriented to the other business sector while the Central, East and South members are focused to travel. The EU members mainly traded between them selves. Services trade faced higher barriers in cross-border trade. OECD measures these restriction by Services Trade Restrictiveness Index. EU common market provides better condition for the intra- EEA trade in services even the protection differs between countries and it is more liberal for computer and telecom sectors while in accounting services and legal services the protection is high due to national legislations.