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 Domains Mode of SupplyRelevant Data Source Cross border supplyBoP service statistics (categories other than travel) Consumption abroadBoP Statistics (mainly the travel category) Commercial presenceProduction, 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, Average growth rates of business services exports, OECD dominates…..but developing are among the most dynamic exporters

What explains services dynamism? National data show human capital matters: Evidence across Indian states Source: Amin and Mattoo (2006).

What explains services dynamism? National data show institutions matter: Evidence across Indian states Source: Amin and Mattoo (2006).

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 Indias 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, Source: 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

Step 2: Econometric analysis using firm- level data suggests services policy reform benefited manufacturing industries New study based on: panel data for 4,000 Indian firms for the 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).

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 : Ten new bank licenses issued : 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)

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. 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

IV. What should be the focus of international cooperation on services?

Transport and Mode 4 are heavily protected but neither is being seriously negotiated Source: Gootiiz and Mattoo (2009). Remedying the gaps in data on services trade policy by sector

Uruguay Round Commitments, Doha Offers and Actual Policy 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?