1. International student movements and the effects of barriers to trade in higher education services Dr Philippa Dee Crawford School of Economics and Government

2. Outline  Services trade and barriers to that trade  Why higher education is different  A model of the ‘market’ for higher education  Hypotheses concerning international students, and the role of trade barriers  Empirical findings  Policy implications  Further research

3. Services trade – some random generalisations  Most services are not traded cross-border, but by the movement of people (consumers or individual producers) the movement of capital (service-producing firms)  Barriers operate behind the border, in the country of the producer or consumer è Measurement has generally been on some behind-the- border measure of economic performance

4. Services trade – some more random generalisations  For most services studied to date, the predominant mode of delivery has been via the movement of producers FDI (banking, electricity generation, telecoms) temporary movement of individual producers (professions)  Commitments under the General Agreement on Trade in Services (GATS) bind services and services suppliers ( not consumers) è Most measurement work has concentrated on supply-side effects, behind the border, within the importing country

5. A further key distinction  Some barriers have created rents …  eg quantity controls, quotas, barriers to entry

6. A further key distinction  … and some have raised real resource costs  eg cargo inspections, admin and compliance costs

7. Why higher education is different?  The main mode of delivery is via the movement of consumers (international students) Although delivery via the movement of capital (off-shore campuses) or individual producers (scholars) is gaining ground rapidly So too is cross-border trade (program mobility)  Some barriers to trade in higher education restrict the movement of consumers, not producers è need to look at both sides of the market  Some barriers to trade affect education exports, not imports

8. Barriers to trade in higher education services - examples  Barriers to importing cross-border eg restrictions on downloading course material from the internet  Barriers to importing via outward movement of students eg restrictions on foreign institutions advertising locally  Barriers to importing via commercial presence eg licensing requirements for local campuses of foreign institutions  Barriers to importing via inward movement of teachers eg nationality or citizenship requirements  Barriers to exporting via inward movement of students eg numerical limits or quotas

9. The ‘market’ for higher education  Tuition fees are regulated and cannot be freely set to clear the market, so higher education is rationed  Observed outcomes do not reflect demand, but rather the rationing rule – a mix of supply and demand effects

10. Hypothesis  Rationing in higher education is a mix of A lottery – your chances of winning are proportional to the number of tickets you hold Screening – you have to meet the admissions criteria  The numbers of foreign students from various countries in tertiary institutions around the world will reflect these two influences

11. Spelling out the rationing rule – the lottery effect  The number of tickets held in the queue depends on (i) the length of the queue, and (ii) the proportion of those tickets held by students from your home country è The number of students from country A enrolled in tertiary institutions in country B will depend positively on the population of the destination country B (if foreign students were scattered randomly about the population centres of the world, this is how the length of the queues would be determined) positively on the population of the source country positively on the GDP per capita in the source country (richer countries are more likely to be able to meet the living costs of overseas study) positively on the perceived quality of tertiary education in the destination country (literature suggests this demand effect is strong) perhaps negatively on the perceived quality of tertiary education in the source country (less need to go abroad to get a quality education)

12. Spelling out the rationing rule – the lottery effect (continued)  The number of students from country A enrolled in tertiary institutions in country B will also depend positively on restrictions on inward FDI (mode 3 imports) in education in the source country  this assumes inward FDI boosts the quantity and/or quality of tertiary education in the source country, so less need to go abroad  this assumption should be tested in further research positively on restrictions on imports via cross-border trade (mode 1) or movement of teachers (mode 4) in the source country – for similar reasons negatively on restrictions on imports by the source country via the outward movement of students

13. Spelling out the rationing rule – the screening effect  The number of students from country A enrolled in tertiary institutions in country B will also depend positively on the perceived quality of the students from the source country (or the feeder institutions from which they come), relative to the quality of the education on offer in the destination country – exporters want good students, but ‘beggars can’t be choosers’ negatively on distance (exporters often travel extensively to source countries to assess the quality of the feeder institutions and pre- screen the candidates, so distance matters) negatively on restrictions on the inward movement of foreign students (mode 2 exports) in the destination country

14. The final model  The number of students from country A enrolled in tertiary institutions in country B will depend on population at source (+) population at destination (+) distance (-) GDP per capita at source (+) quality at source (+/- but expect +, ie screening effect will dominate demand effect) quality at destination (+/- but expect +, ie demand effect will dominate the screening effect) trade restrictions

15. Results  Large sample (93 source and 35 destination country pairs for 2000) The model without trade barriers fits the data well Coefficients of all variables of the expected sign and significant  Small sample (19 source and 12 destination country pairs for 2000) Basic model continues to fit the data well Some trade restrictions do affect student flows

16. Effects of trade restrictions  Restrictions on mode 3 imports at source move demand curve out  intermodal substitution  Restrictions on mode 2 exports at destination move supply curve in  But only the former are GATS relevant!

17. Further research  To test empirically the assumption that restrictions on mode 3 imports in the source country reduce the quality or quantity of higher education which is it?  How do the quantity effects translate into effects on university costs or profits in both source and destination countries?  Theory of non-profit organisations relevant suggests any rents are spent pursuing ‘non-profit’ objectives may look like inefficiency, but is it really?  Do foreign students themselves have an impact on the quality or quantity of higher education?

18. International student movements and the effects of barriers to trade in higher education services Dr Philippa Dee Crawford School of Economics and Government