OECD Expert Meeting on the Services Trade Restrictiveness Index, Paris 2-3 July 2009

STRI for professional services - Discussion and suggestions -

Henk Kox

CPB Netherlands Bureau for Economic Policy Analysis

Praise

STRI is result of a large research effort

Builds on latest developments in international trade literature and econometric methods

Flexible, can be extended to: More countries Other time periods More services sectors (trade, transport, financial services?)

STRI for professional services yields plausible gravity estimates

1. Mode-choice neutrality of regulation

STRI represents progress compared to generic trade-restrictiveness indicators by considering impacts on different services supply modes

Impact of regulation on supply modes is now classified in a static way (Table 2): either mode 1, or mode 3, or cross-modal

The cross-modal category is not very informative

My suggestion is to add instead the element of mode-choice neutrality: does a policy tilt the mode-choice of firms

Towards mode 1 ? Towards mode 3 ?

This can be done quite easily by reclassifying the mode-choice impacts in the very central Table 2

1. Mode-choice neutrality of regulation

Table 2 Classification of Trade barriers in my view under-rates

regulatory impacts on mode 1

In at least 18 cases I would have classified a ' Yes' for the mode-1 impact

Impact regulation on the choice of trade mode is complex and deserves a broad-shot approach to capture all relevant impacts

2. Bilateral aspects in trade costs

Bilateral policy heterogeneity causes fixed adaptation costs for firms in professional services

Have to be absorbed up-front, upon entry in foreign market

affect mode 1 and mode 3

have big impact on SME

Fixed domestic qualification costs for could be source for scale economies through trade

..but different national qualification costs for PS firm are entry obstacles , protect national markets

2. Bilateral aspects in trade costs

Bilateral policy heterogeneity causes fixed adaptation costs for firms in professional services

Bilateral policy differences important for understanding services trade between OECD countries and developing countries

Why not consider bilateral STRI indicators, per country pair?

could capture fixed adaptation costs for firms in professional services (mode 1+3)

3. Origin country policies

Origin-country policies are blind spot in present STRI, but do affect services trade

E.g. trade facilitation policies, subsidies, public involvement, extra-territorial operation of a country's regulations

now only captured in broad country x time dummy can we do better?

4. Data sources

Selection of indicators in database: no use of World Bank 'Cost of Doing Business' data

organisational chauvinism? DB data well-researched, available for many non-OECD

countries includes formal rules plus implementation efficiency

possibly useful elements in Enforcing contracts,

Employing Workers, Starting a Business, Getting Licenses