www.wiiw.ac.at motivation 2 Barriers to services trade - - PowerPoint PPT Presentation

WIOD conference, Groningen, 24-26.04.2012

www.wiiw.ac.at

Recent EU Enlargement: The Evolution of Services Trade Costs between EU Members

Joseph Francois, Olga Pindyuk

2

Barriers to services trade

• Cross-border services trade accounts for >20% of global

trade

• Even more if trade through foreign affiliates is added
• Regulation driven both by efficiency and equity concerns
• Affecting establishment or ongoing operations
• Non-discriminatory or discriminatory
• Affecting price of services or costs of service providers
• Bilateral heterogeneity of regulation in each pair of

countries matters

motivation

3

EU and services trade

• EU members have quite heterogeneous services

regulation (Kox and Lejour, 2007)

• Still the most advanced services trade liberalization

among existing RTAs (Francois, Hoekman, 2010)

• Thus we should expect to see positive effect of the EU

membership on services trade of new members

motivation

4

Openness in the EU to services

motivation

5

Openness in the EU to services

motivation

6 is maximum value of an index, indicating the highest level of regulation

6

Services exports to the EU, index, 1999=100

motivation

7

Geographic structure of EU10 services exports, USD mln

data description

8

Sectoral structure of EU10 services exports, %

data description

9

Ways to measure services trade barriers

• “Indirect” modeling (price-cost margins by sector

across countries or gravity regressions)

• Not possible to attribute price-cost margins or differences in

trade volumes to specific trade policies

• Data limitations
• „Direct“ methodology using regulatory indicators of

APC, World Bank, OECD (Dee, 2005; Dihel and Shepherd, 2007; Berden, Bergstrand, et al 2009)

• Assumption of sample average responsiveness of countries‘

performance to policy settings

• Often lack of in-sample variation; insufficient differentiation of

services regulation

literature review

10

Gravity-based representation of trade

• Assuming that import values depend on a mix of

importer characteristics, exporter characteristics, and bilateral properties, we specify total trade as follows:

modeling approach

11

Estimation approach

• We group effects as follows:
• We only are interested in the first cell. We can isolate

this by differencing over means (pairs, exporter/time, importer/time).

• Difference-in-difference approach (Egger and Pfaffermayr,

2004; Frazer and Biesebroeck, 2007; Hornok, 2009)

Pair-wise Exporter Importer Time varying Time invariant

modeling approach

12

Estimating approach

• We estimate a polynomial pair-wise time trend for

trade with the EU relative to the general baseline (similar to Francois and Woerz, 2009)

• This captures changes that are not explained by

general exporter/ importer time varying effects, or time-constant effects, but represent pair-wise trends, which might be attributed to regulatory changes in the single market

modeling approach

13

Estimating procedure

• Regional regressors:
• 6 regional pair-wise dummies (old-old, new-new, old-new, new-old,

third-old, third-new) are interacted with time trend, and third degree polynomials are constructed

• 2 stage selection model estimation procedure:
• Heckman selection to account for zero flows – gives inverse Mills

ratios (pdf/cdf) to use as an additional regressor in the second stage

• Services imports (logs) and regressors are demeaned with respect to

time, exporter and importer to isolate time varying pair-wise effects

• Clustered errors to deal with remaining heterogeneity.
• Separate regressions for 2 periods: 1999-2002 and 2003-2007
• Chi-squared tests for full polynomial expressions
• Regressions for each services sector

modeling approach

14

Data description

• Dataset based on the Eurostat, OECD, UN, and IMF

data

• Bilateral services trade flows for 244 reporting

countries and 244 partners (plus World)

• About 20 sectors
• In total (1995-2009) we have more than 2 mln
• bservations, 18% of observations are missing values,

and 35% of observations are zero flows.

• Mode 1+2 (cross border trade)

data description

15

Change in bilateral trade relative to global baseline, %, 1999 to 2002

BOPS 200 Total 205 Transpor t 236 Travel 245 Communications 249 Construction 253 Insurance 260 Financial 262 Computer 268 Other business

• A. old_old
• 2.37%
• 0.43%
• 0.49%
• 0.49%
• 3.66%

5.34%

• 0.21%
• 0.37%
• 0.42%
• B. old_new

2.35%

• 1.21%

1.24%

7.16% 11.01%

• 4.51%

43.22%

• 10.52%

18.29%

• C. new_new
• 9.92%

7.47% 25.11% 31.26%

• 58.62%

1121.18% 43.45%

• 14.85%
• D. new_old

3.79%

• 1.90%

4.22%

• 3.75%

6.35% 5.05% 0.63% 1.97%

• 1.11%
• E. third_old
• 0.07%

0.97%

• 0.37%

0.65%

• 0.66%
• 1.80%

0.98%

• 0.46%
• 0.20%
• F. third_new

1.59% 0.58%

• 9.23%
• 8.29%

31.57%

• 15.67%
• 46.80%
• 8.79%
• 3.01%

Observations 8417 5594 4849 2577 2127 2210 1944 2031 4382

results

16

Change in bilateral trade relative to global baseline, %, 2003 to 2007

BOPS

200 Total 205 Transpor t 236 Travel 245 Communications 249 Construction 253 Insurance 260 Financial 262 Computer 268 Other business

• A. old_old
• 3.39%

2.12%

• 6.18%
• 2.63%
• 9.85%

3.08%

• 3.29%
• 7.16%
• 11.75%
• B. old_new

2.17%

• 8.95%

10.08% 2.56% 3.59%

129.91%

89.65% 18.53% 2.76%

• C. new_new
• 4.97%

20.32%

• 14.36%

1.63% 7.45%

• 76.31%
• 53.81%
• 19.55%
• 5.47%
• D. new_old

5.83%

• 0.67%

13.31% 5.07% 16.33%

• 13.50%
• 1.48%

8.30% 17.64%

• E. third_old
• 0.12%
• 0.48%
• 0.61%
• 0.01%

0.68%

• 0.17%

1.38% 1.75% 1.26%

• F. third_new

0.42%

• 0.41%
• 0.57%
• 1.88%
• 7.90%
• 35.76%
• 24.33%
• 7.48%

0.18% Observations 24566 12208 11261 7294 5264 5758 6333 6560 11197

results

17

Main trends in services trade 1999-2002

• Accession countries seem to have started liberalizing

access to their services markets prior to 2003

• Relatively faster growth in exports from old to new in

communications, construction, other business services and, most prominently, financial services

• Exports in the opposite direction (new->old) did not

pick up much above the global trendline

• Likely trade diversion in exports of third and new to

new

results

18

Main trends in services trade 2003-2007

• Exports from old to new grew faster than the global

baseline for most of the sectors

• now as well for travel and computer services
• dramatic growth in exports of financial services
• Exports from new to old also grew faster than the

global baseline for most of the sectors, apart from insurance and finance

• Trade diversion continues:
• third-new in most sectors
• new-new in computer and other business services
• No strong impact on third country access to the old EU

members’ market

results

19

Estimating trade cost equivalents consistent with cumulative trade volume changes

• Objective: translate trade volume effects into

price/cost effects. These represent a mixture of possible effects:

• Simple RTA dummies would miss third county benefits of non-

discriminatory changes linked to accession of new Members.

• Method: small computational model (general

equilibrium) to identify set of trade cost reductions consistent with estimated volume changes.

• 3 regions (EU15, EU12, rest of world)
• 12 sectors (8 services, 4 others: agrofish, mining, food,

manufactures, transport, communication, construction, finance, insurance, business services, consumer services, other services)

future work

20

Basic computational approach

• Model:
• Data (including intermediate linkages and two-way trade

flows) are benchmarked to 2003

• CES production structures, final demand, and trade

(consistent with sector level gravity equation)

• Iceberg trade costs linked to bilateral import demand
• Selected services trade flows are made exogenous, in

a “closure swap” with trade costs

• Trade flow changes are imposed on the model (for 8

estimated service sectors, for EU12EU15, EU15EU12, ROWEU12, ROWEU15), yielding trade cost reductions

future work