DP14181 Services Trade Policies and Economic Integration: New Evidence for Developing Countries

Author(s): Bernard Hoekman, Ben Shepherd
Publication Date: December 2019
Date Revised: November 2020
Keyword(s): international trade, Machine Learning, restrictiveness indicators, services policies, Trade in Services
JEL(s): F13, F15, O24
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14181

This paper provides the first quantitative evidence on the restrictiveness of services policies in 2016 for a sample of developing countries, based on recently released regulatory data collected by the World Bank and WTO. We use machine learning to recreate to a high degree of accuracy the OECD's Services Trade Restrictiveness Index (STRI), which takes account of nonlinearities and dependencies across measures. We use the resulting estimates to extend the OECD STRI approach to 23 additional countries, producing what we term a Services Policy Index (SPI). Converting the SPI to ad valorem equivalent terms shows that services policies are typically much more restrictive than tariffs on imports of goods, in particular in professional services and telecommunications. Developing countries tend to have higher services trade restrictions, but less so than has been found in research using data for the late 2000s. We show that the SPI has strong explanatory power for bilateral trade in services at the sectoral level, as well as for aggregate goods and services trade.