Analyzing Services Trade and Policy:
Overcoming Limitations of the Data
Aaditya Mattoo
WTO Data Day, 18 May 2009
Four broad questions
• What is the pattern of trade in services and how is it determined?
• What are the barriers to trade and how big are the gains from eliminating them?
• What are the elements of successful reform of services trade policy, and how do they differ across sector and country?
• What should be the focus of international cooperation on services?
I. What is the pattern of trade in services and how is it determined?
International Transactions in Services and Existing Statistical DomainsMode of Supply Relevant Data Source
Cross border supply BoP service statistics (categories other than travel)
Consumption abroad BoP Statistics (mainly the travel category)
Commercial presence Production, FDI and FAT statistics
Presence of natural persons
BoP and FAT Statistics
BoP data: Shared interest in cross-border trade in business services
Regional distribution of business services exports, 1990-2005
Average growth rates of business services exports, 1995-2005
Regional Distribution of Business Services Exports
223 7 9
256
79
4 11 8
380
86
10 17 12
530
171
3523 23
0
100
200
300
400
500
600
East Asia & Pacif ic South Asia Latin America & Caribbean Middle East & Africa OECDs
(in b
illio
n of
US
dolla
r)
1990 1995 2000 2005
906 Average Growth Rate of Business Service Exports for Selected Countries during 1995-2005
9.3
9.4
9.7
9.8
10.6
10.6
10.9
10.9
11.5
11.9
12.2
12.2
12.3
13.6
14.4
14.7
15.1
16.6
25.4
31.6
0 5 10 15 20 25 30 35
United States
Norway
Sweden
Mauritius
Malaysia
Morocco
New Zealand
Nigeria
Jamaica
United Kingdom
Spain
Finland
Malta
Israel
Argentina
Romania
Brazil
China
India
Ireland
(%)
OECD dominates… ..but developing are among the most dynamic exporters
What explains services dynamism?National data show human capital matters:
Evidence across Indian statesServices output and Education: averages over 1980-00
OR
AP
BH
HY KNKR
TN
UPWB
GJ
MPRJ
PJ
MH
0
1000
2000
3000
4000
5000
6000
0 0.001 0.002 0.003 0.004 0.005
Tertiary educated per cpaita
Ser
vic
es
ou
tpu
t p
er c
ap
ita
Source: Amin and Mattoo (2006).
What explains services dynamism?National data show institutions matter:
Evidence across Indian statesT&D Loss and Services per capita: averages over 1980-00
BH
OR
TN
WB
PJ
KN
UP
MP
KR
GJ
AP
HY
RJ
MH
R2 = 0.45
0
1000
2000
3000
4000
5000
6000
10 15 20 25 30
T&D Losses (%)
Se
rvic
es
pe
r c
ap
ita
Source: Amin and Mattoo (2006).
Goods85%
Services15%
US Monthly Imports of Total Goods and Services, Shares in Total Exports (2008) and Year-on-Year Growth Rates
Source: Borchert and Mattoo (2009).
US high frequency trade data reveals the crisis-resilience of trade in “other private services”
Why is services trade more resilient?
• Demand for traded services is less cyclical: what does national data on output and employment show?
• Services trade and production are less dependent on external finance: what does firm or industry level data show?
• Little explicit protection, but changing political climate and widening boundaries of the state may introduce a national bias in firms’ procurement and location choices: what does policy or firm-level data show?
“It ain't what you don't know that gets you into trouble. It's what you
know for sure that just ain't so.”
• GDP data in poor countries and the secret of steady growth
• GDP data in rich countries and services productivity growth
• India’s services exports to the US and US imports from India
• Trade in telecom, banking and insurance: What are we really measuring?
II. What are the barriers to trade and how big are the gains from eliminating them?
Restrictiveness of Services Trade Policy, 2007-08
ARG
AUSAUTBEL
BRA
KHM
CANCHL
CHN
COLCZE
DNK
ECU
EGY
FIN
FRA
DEUGHA GRC
HUN
IND
IDN
IRL
ITA
JPN
JOR
KENKOR
LTU
MYS
MEX
MNG
MAR
NLD
NZL
NGA
PAK
PER
PHL
POL
PRT
RUS
SAU
SEN
ZAF
ESP
LKA
SWE
TZA
THA
TTO
TUN
UKR
GBRUSA
VEN
10
20
30
40
50
60
Re
stri
ctiv
en
ess
of serv
ices tra
de p
olic
ies
0 10 20 30 40GDP per capita (thousand)
GDP per capita,PPP (constant 2005 international $)
Source: Gootiiz, MattooSource: Gootiiz and Mattoo (2009).
Remedying the gaps in data on services trade policy
Step 1: Times Series Data on Policy: In recent years, India has reformed its services sectors and
significantly liberalized FDI
Newly created index of services reform
0
0.5
1
1.5
2
2.5
3
3.5
4
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Banking Insurance Telecom Transport
Newly created index of services reform
0
0.5
1
1.5
2
2.5
3
3.5
4
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Banking Insurance Telecom Transport
0
5
10
15
20
25
30
35
40 Growth Rate (CAGR)
36%
20%
FDI in Services*
FDI in Non-services
India: FDI in services sector is growing faster than in non-services . . .
(1992/93 values are indexed to 1; Unit: US$)
1992
/93
1993
/94
1994
/95
1995
/96
1996
/97
1997
/98
1998
/99
1999
/00
2000
/01
2001
/02
0
5
10
15
20
25
30
35
40 Growth Rate (CAGR)
36%
20%
FDI in Services*
FDI in Non-services
India: FDI in services sector is growing faster than in non-services . . .
(1992/93 values are indexed to 1; Unit: US$)
1992
/93
1993
/94
1994
/95
1995
/96
1996
/97
1997
/98
1998
/99
1999
/00
2000
/01
2001
/02
Step 2: Econometric analysis using firm-level data suggests services policy reform
benefited manufacturing industriesGains in Annual TFP Growth After Services Reform
0
1
2
3
4
industries withlimited
dependence on banking
industries with high
dependence on banking
industries with limited
dependence on telecomms
industries with high
dependence on telecomms
Percent Gains in Annual TFP Growth After Services Reform
0
1
2
3
4
industries withlimited
dependence on banking
industries with high
dependence on banking
industries with limited
dependence on telecomms
industries with high
dependence on telecomms
Percent
New study based on:•panel data for 4,000 Indian firms for the 1990-2005 period, and •input-output linkages, finds that
banking, telecommunications and transport reforms all have significant positive effects on the productivity of manufacturing firms
Source: Arnold, Javorcik, Lipscomb and Mattoo (2008).
Welfare Gains from a 3% Increase in Developed Countries' Temporary Labor
Quota
0
20,000
40,000
60,000
80,000
100,000
Developed Res t of the world
Unskilled Labor Skilled Labor
Note: Data in million US$
Source: Walmsley and Winters (2002)
Using CGE Models to Produce ex ante Estimates of Gains from Mode 4 Liberalization
The paucity of data on performance
• The different dimensions of performance: productivity, prices, quality, variety, access
• The distributional consequences: across income groups and regions
• The costs of adjustment: for firms and individuals
III. What are the elements of successful reform of services trade policy?
Case studies using survey data: Openness has not improved access to financial
services in Zambia
• Banking was liberalized before establishing a proper regulatory framework. 1991-1994: Ten new bank licenses issued1995-2001: Nine bank failures, causing estimated losses
equivalent to 7 percent of GDP.
• Foreign banks today account for over two thirds of total assets, loans and deposits. But credit to the private sector is only 8 per cent of GDP -
lower than in 1990 and in most other Sub-Saharan African countries.
Only 5,000 people hold 90 percent of loans.
Source: Mattoo and Payton (2007)
The sequence of telecom reform in selected countries
Country 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Malaysia Privatization Competition Regulation India Privatization Competition Regulation Argentina Privatization Competition Regulation Brazil Privatization Competition Regulation El Salvador Privatization Competition Regulation Nigeria Privatization Competition Regulation South Africa Privatization Competition Regulation Uganda Privatization Competition Regulation
Source: World Bank/ITU Telecommunications Policy Database & Fink, Mattoo, Rathindran (2001), forthcoming. Note: Competition refers to the fixed-line local services segment.
Step 1: Compiling cross-country data on the sequence of policy reform: Privatization, competition and regulation in basic telecommunications
Source: World Bank/ITU Telecommunications Policy Database & Fink, Mattoo, Rathindran (2001), forthcoming.
Growth in mainlines
12.40%
25.50%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Privatization before competition
Competition before privatization
Step 2: Combining policy data with ITU data for an econometric analysis of the impact of alternative sequences of reform:
Delaying competition after privatization can dampen growth of telecommunications
Understanding the politics behind policy
• Zambia telecommunications and transport
• US financial regulation and maritime transport
Two examples of contrasting transparency:
Using data to measure the exercise of political influence in the US
Campaign Contributions during the 2008 Election Cycle by US Commercial Banks
Rank Organization Amount Democrats Republicans 1 JPMorgan Chase
& Co $4,280,866 61% 39%
2 Citigroup Inc $3,467,047 65% 35% 3 American
Bankers Assn $3,067,061 43% 57%
4 Bank of America $2,200,793 56% 44% 5 Wells Fargo $1,578,597 50% 50% 6 Deutsche Bank
AG $1,356,754 72% 28%
7 Independent Community Bankers of America
$1,013,075 53% 47%
Total contributions by all US commercial banks
$36,329,595
IV. What should be the focus of international cooperation on services?
Transport and Mode 4 are heavily protected but neither is being seriously negotiated
Restrictiveness index: by income group
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
Lowincome
Low ermiddle
UpperMiddle
Highincome
Fin. Serv
Telecom
Retail
Transport
Professional
Source: Gootiiz and Mattoo (2009).
Remedying the gaps in data on services trade policy by sector
Uruguay Round Commitments, Doha Offers and Actual Policy
ARG
AUS
BRA
KHM
CAN
CZR
CHL
CHN
COL
ECU
EGY
_EUN
GHA
HNG
IND
IDN
JPNJOR
KEN
KOR
LTN
MYS
MEX
MNG
MAR
NZL
NGA
PAK
PER
PHL
SAU
SEN
ZAF
LKA
TZA
THA
TTO
TUN
USA
VEN
ARG
AUS
BRA
KHM CANCZR
CHL
CHN
COLECUEGY
_EUN
GHA
HNG
INDIDN
JPN
JOR
KEN
KOR
LTN
MYS
MEX
MNGMAR
NZL
NGA
PAK
PER
PHL
SAU
SEN
ZAF
LKA
TZA
THA
TTOTUN
USA
VEN
ARG
AUS
BRA
KHMCANCZRCHL
CHN
COLECU
EGY
_EUNGHA
HNG
IND
IDN
JPN
JOR
KENKOR
LTN
MYS
MEX
MNG
MAR
NZL
NGA
PAK
PER
PHL
SAU
SENZAF
LKATZA
THA
TTO
TUN
UKRUSA
VEN
020
40
60
80
10
0
0 10000 20000 30000 40000GDP per capita in 2006 (constant 2005 USD)
Restrictiveness of GATS commitments Fitted values
Restrictiveness of Doha Offers Fitted values
Restrictiveness of actual policies Fitted values
Source: Gootiiz and Mattoo (2009).
Assessing the Value of Trade Agreements
Looking ahead: Cost-Benefit Analysis of Data Itself
How valuable from a policy-perspective are certain types of information and how much would it cost to collect the relevant data with a certain degree of reliability ?
• Policy makers and negotiators: What are the key policy questions? E.g. to have a better sense of exports of IT-enabled services from India; of tourist expenditures in the Caribbean; of the importance of foreign banks in Eastern Europe; of the sources of remittances for Bangladesh and Yemen? Where is the protection? Where are the gains from cooperation – regionally, multilaterally?
• Economists and analysts: What types of data can help address the specific questions?
• Statisticians: What is the cost of collecting specific types of statistics?
Top Related