Transcript Presentation Title

Services Trade for Growth:
Challenges and Opportunities for
Developing Countries
Iza Lejarraga
Trade Policy Linkages and Services Division
Trade and Agriculture Directorate
Harnessing Services for Sustainable Development:
Opportunities and Challenges for Jordan
Jordan Enterprise Development Corporation
Amman, 21-22 September, 2010
Overview
 Open Services Markets: What are the opportunities?
 Liberalizing Services: What are the challenges?
 Embedding Services Reform in a Growth Strategy
 Measuring & Monitoring Services Reform: STRIs
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What are the opportunities?
Gains
from
Trade
Developme
nt-friendly
Higher
Impact
• Liberalization leads to lower prices & greater variety for consumers
• Enterprises in all sectors (including manufacturing and agriculture)
benefit from lower input costs (e.g., energy, transport, etc.)
• Generates higher demand and market access for domestic providers
• Pro-poor: facilitates access to health, education, information
• Pro-employment: services are more intensive in human capital, and less
prone to mechanization than agriculture and industry
• Pro-sustainable: services use fewer natural resources than industry and
agriculture, putting less pressure on the environment
• Countries with relatively fewer endowments of capital or poor
geography stand more to gain from specialization in services
• Since price differentials are higher in services (esp., Mode 4) than in
goods, the gains from services trade are much greater
• Services are more resilient to financial crises: gains are less vulnerable
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What are the challenges?
Behindthe-border
• Harder to identify measures embedded in domestic regulations
• High costs (financial, administrative, institutional) of removing barriers
• Complex political economy: greater number of stakeholders involved
(regulators) than with tariffs, requiring greater coordination efforts
Market
Failures
• Regulations fulfil legitimate policy objectives: palliating market failures
• When they do, regulations are welfare-enhancing and removing them
can be trade-restrictive (i.e., non-competitive markets).
• Reducing one restriction while maintaining others yields ambiguous
welfare effects (theory of second best)
Prioritization
• It is not feasible, let alone desirable, to open all sectors simultaneously
• Hence, it becomes important to have a strategy for prioritizing and
sequencing reforms: linking services strategy to growth objectives.
• In order to set targets, monitor progress, and measure results it is
useful to develop indicators on the degree of services restrictiveness
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Embedding services reform in growth strategy
 Services liberalization is a means to an end: linking it to growth

Economic growth is necessary for development

Services reforms worth pursuing should be linked to growth/societal objective

Getting the largest bang for the buck of regulatory reform
 Targeting sectors that have highest impact: binding constraints

Assess where are the binding constraints to growth at any particular time

Liberalize selectively those sectors that relax the binding constraints to growth

If access to capital is not binding the economy, liberalizing financial services won’t
yield a significant effect on growth until the binding constraint is relaxed
 A framework for prioritization: Growth Diagnostics

Analytical tool to prioritize and rank interventions according to growth impact

Intuitive, accessible, practical: helps dialogue and coordination
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What reforms target constraints to entrepreneurship?
Problem: Low levels of private investment and entrepreneurship
Low return to economic activity
Low social returns
High cost of finance
Low domestic
savings + bad
international
finance
Low appropriability
government
failures
bad local finance
market
failures
Low
competition
poor
geography
low
human
capital
bad infrastructure
micro risks:
property rights,
corruption,
taxes
information
externalities:
“self-discovery”
macro risks:
financial,
monetary, fiscal
instability
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coordination
externalities
High risk
High cost
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Measuring Services Reforms: STRIs
 What is a Services Trade Restrictiveness Index (STRI)?

A composite indicator of services trade restrictiveness by sector and country

Not a measure of economic performance or commercial attractiveness
 How is it developed?

Collects qualitative information on barriers to trade in services

Translates qualitative data into aggregated quantitative scores by sector

Classifies barriers by mode, MA/NT/DR, discriminatory, entry/ongoing operations
 How can it be useful?

Helps assess the impact of services trade barriers in the economy

Enables comparison of restrictions across countries at the sectoral level

Facilitates bilateral and multilateral negotiations on trade in services

Catalyzes domestic political bargaining on services regulatory reforms
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OECD Method for Constructing STRIs
How to select
measures?
How to quantify
measures?
• Regulations covered by the GATS
framework and those explicitly
mentioned in RTAs
• Barriers identified as relevant by
sector experts at OECD Services
Expert Meetings
• Measures related to future WTO /
GATS negotiations on rules
• Explore linkages between
measures: complementarities and
substitutability
• Dynamic nature of some sectors
(e.g., telecommunications) may
render some restrictions irrelevant
while new ones emerge
• Scoring is done on a binary basis
(87%; others continuous)
• Binding restrictions taken into
account via automatic filling
• Weights for categories of
measures based on expert
judgement; measures within
categories are equally weighted
• STRI is robust to all other
weighting schemes; high rank
correlation (close to 0.90)
between weighting schemes
• STRI is negatively and significantly
correlated with trade & investment
flows (gravity equation)
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STRIs in MENA: Where does Jordan stand
 STRIs: Selected MENA countries (2007)

Countries: Egypt, Jordan, Lebanon, Morocco

Sectors: financial (banking & insurance), telecoms, transport (air & maritime)

Data: questionnaires and country studies; de jure and de facto (implementation)

Method: aggregate (Anderson & Neary 1994) and modal (Dihel & Shepherd 2007)
 Results: No country ranks most open/restrictive across all sectors

Jordan has relatively lower STRIs, except for insurance where it has many restrictions

Lebanon registers highest liberalization in banking (via mode 3; high protection mode 4)

Morocco has liberalized telecoms, banking, air transport (high barriers in maritime)

Egypt’s insurance and telecoms sectors are most liberalized; air most protected
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STRIs: Scores for Banking and Insurance Sectors
STRI Scores for Banking Sector
Aggregate
Mode 1
Mode 2
Mode 3
Mode 4
Lebanon
0.20
0.00
0.00
0.04
2.69
Jordan
0.41
1.10
0.00
0.22
1.82
Egypt
0.85
1.49
0.00
1.03
1.07
Morocco
1.16
1.98
3.33
0.34
0.19
STRI Scores for Insurance Sector
Aggregate
Mode 1
Mode 2
Mode 3
Mode 4
Egypt
0.50
0.00
0.00
0.62
1.55
Jordan
0.88
2.27
2.10
0.32
1.88
Morocco
1.61
3.44
3.17
0.91
0.40
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STRIs: Scores for Telecommunications (Fixed and Mobile)
STRI Scores for Fixed Telecoms Sector
Aggregate
Mode 1
Mode 2
Mode 3
Mode 4
Morocco
0.80
0.64
2.05
0.81
0.73
Jordan
0.85
0.02
0.00
1.08
2.23
Egypt
1.22
0.64
2.05
1.36
1.81
STRI Scores for Mobile Telecoms Sector
Aggregate
Mode 1
Mode 2
Mode 3
Mode 4
Morocco
0.59
0.00
0.00
0.67
1.16
Jordan
0.78
0.00
0.00
0.67
2.66
Egypt
0.99
0.00
0.00
0.77
2.24
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STRIs: Scores for Transport Sectors (Maritime & Air)
STRI Scores for Maritime Transport Sector
Aggregate
Mode 1
Mode 3
Mode 4
Jordan
0.36
0.5
0.34
0.37
Egypt
0.55
0.75
0.52
0.17
Morocco
0.59
0.5
0.64
0.25
STRI Scores for Air Transport Sector
Aggregate
Mode 1
Mode 3
Mode 4
Jordan
0.47
0.46
0.49
0.36
Morocco
0.49
0.41
0.60
0.36
Egypt
0.73
0.41
0.60
0.10
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OECD Trade and Agriculture
Thank you for your attention!
Contact: [email protected]
www.oecd.org
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