Analysis of services trade liberalization and economic growth: Case study of telecommunication and banking sectors in GMS countries

Transcription

1 Analysis of services trade liberalization and economic growth: Case study of telecommunication and banking sectors in GMS countries Mr. Khin Maung Nyunt Mae Fah Luang University, Thailand ARTNeT Consultative Meeting on Bridging the Development Gaps in the GMS Centre for Analysis and Forecasting Hanoi, 1 2 June 2009

2 1. Introduction The objectives 1) Assessment of openness in selected services sectors 2) Identification of key principles of regulation and services trade liberalization strategies 3) Needs and priority areas and sequencing for services trade liberalization 4) Effects of service Trade Liberalization on Growth

3 Content 1. Constructing Services Trade Restrictiveness Index (STRI) 2. Estimating tariff equivalent of STRI applying the econometric modeling basedonthepricecostmargin(pcm) 3. Needs and priority areas and sequencing for services trade liberalization 4. The Linkages between service Trade Liberalization and export growth: A Gravity Model 5. Policy implications

4 Research Overview Areas of Study 1 Fixed line, 2. Mobile services, 3 Internet, 4 Banking, and 5 Insurance Constructing Services Trade Restrictiveness Index (STRI) REGULATORY REGIMES MARKET STRUCTURE & COMPETITION MARKET ACCESS TEMPORARY MOVEMENT OF PEOPLE POLICY IMPLICATIONS Need and Opportunity for Service Trade Liberalization Developing countries provisions Sequence of liberalization Potential costs and benefits of liberalization Effects of Liberalization -STRI & trade policy Price and cost effect -Tariff equivalent effect of service liberalization on economic growth (trade policy modeling)

5 Three main restriction categories* A. Restrictions on Commercial Presence 1. Licensing of banks 2. Form of commercial presence 3. Direct investment: equity participation permitted 4. Direct investment: restrictions on certain types of services 5. Joint venture arrangements 6. Permanent movement of people B. Cross-border Trade 1. Raising funds by foreign banks 2. Lending funds by foreign banks C. Other Restrictions 1. Other securities 2. Expanding the number of services outlets 3. Composition of the board of directors 4. Temporary movement of people Four modes of services supply *Hoekman(1995)

6 Removing barriers to trade liberalization will increase competition in the domestic market, and lower price wedges. These services are inputs for other activities, any reduction of their cost will enhance competitiveness and improve welfare.

7 Country 3. Assessment of openness in selected services sectors Table 1 Rank in Exports and Imports of Services Export Import Mercha ndise Commerc ial services Merch andise exclud ing intra EU Mercha ndise service excl intra EU Mercha ndise Commerc ial services Mercha ndise excludi ng intra EU Merchan dise service excl intra EU Cambodia China Lao PDR Myanmar Thailand Vietnam Source: The WTO Secretariat, October 2007.

8 Table 2 Value of exports and imports of services of GMS countries Million of US dollars Export Cambodia ,107 1,321 China 30,431 39,745 46,734 62,434 74,404 1,321 Lao PDR Myanmar Viet Nam 2,702 2,948 3,272 3,867 4,176 4,594 Import Cambodia China 63,031 46,528 55,306 72,133 83,796 98,597 Lao PDR Myanmar Viet Nam 3,252 3,698 4,050 4,739 5,282 5,916 Source: IMF, Balance of Payment Statistics Yearbook 2007

9 2.1 Constructing Services Trade Restrictiveness Index (STRI) The weighting systems developed by McGuire and Scheuele (2000) Kalirajan et al. (2000) and revisited by Kimura et al. (2003). Thus, the assessment of restrictions to these services in each country is based on a combination of objective and subjective evaluations. The survey questionnaires contain two parts, in which the questionnaires in part I are adopted from the survey instruments developed by World Bank (2002).

10 2.2 The price cost margin (PCM) It is expected that restrictions on trade in service services, for example banking services are expected to increase the interest margin or the price of banking services. PCMij = c + α[controlij] + β STRIj+ εij... (1) The price cost margin (PCM) of firm i in sector j of a country is explained by the constant term c, a set of country and firm level variables and TRI, in which a tax equivalent can be directly measured by the coefficient β. It is worth to note that

11 the existing methodology under CPM can offer either price or cost effect of liberalization based on the sign of β in Equation 1. The positive value of β indicates the presence of rent-creating barrier, that would encourage to raise the price but not affect costs. In contrast, a negative β implies cost-creating barriers that would increase cost of firm but not affect price. The measure of tax equivalents TE can be derived as follows: TE = [(PCMij PCM 0j)/PCM 0j] x (2) where PCM0j indicates the price-cost margin that would obtain in country j if it were to have TRI of zero, while all other factors were to remain the same.

12 5. Constructing Services Trade Restrictiveness Index (STRI) Second, based on surveys and interviews, scoring sheets are filled out. The assigned scores vary from 0 (least restrictive case) to 1 (most restrictive case). For each item, the restrictiveness index is obtained by multiplying the assigned score by its corresponding weight. The overall restrictiveness index is calculated by summing up all partial indexes. TRIs are constructed in terms of the foreign index and domestic index in line with McGuire (2000).

13 Table 3 Restrictiveness Index for Financial Sector Banking Insurance Foreign Domestic Foreign Foreign Domestic Foreign Restrictive ness Index (FR) Index Discrimin ation Index (FDR) index (FR) Index Discrimin ation Index (FDR) Cambodia Lao PDR Myanmar Thailand China Viet Nam

14 Table 4 Restrictiveness Index for Telecommunication Setor Fixed line Mobile Internet FR DI FDR FR DI FDR FR DI FDR CAM LPR MYA THAI CHN VNM Source: Calculations of the Researchers

15 TRIs are constructed in terms of the foreign index and domestic index in line with McGuire (2000). In brief, Diheland and Shepherd (2007) apply factor analysis (principle component analysis) in setting weights in constructing modal estimates of services barriers and provide STRI in the form of modes 1 to 4. The proposed methodology will seek to measure STRI based on modified classification of McGuire and Scheudule and provide STRI in terms of four mode of supply.

16 6. Calculating tariff equivalent In Part II of the report, the price-cost margin (PCM) measures are calculated on the basis of the methodologies employed by McGuire and Schedule(2001), Kalirajan et al. (2000) and revisited by Kimura et al. (2003). Thus the estimation of PCM in this research will be based on Equation 1 as mentioned above.

17 Price and cost effects of service trade liberalization Table 5 Correlation coefficients of STRI and price of services Banking Insurance Fixed line Mobile Internet Source: Calculations of the Author

18 Table 6 Tariff Equivalent of STRI (%) Banking Insurance Fixed Line Mobile Internet Telecom Cambodia Lao PDR Myanmar Thailand China Viet Nam Source: Calculations of the Author

19 The cross-section data of GMS countries and their major trading partners will be used to estimate gravity model parameters, in which Xij will be the average value of manufacturers exports for the period , rather than a single period value to avoid estimation errors. We use the following data sources: the Direction of Trade Statistics for bilateral trade flow, the survey data for constructing the TFM indicators, COMPTARDE for trade flow, ASEAN Statistics for tariffs, and WorldBankDevelopmentIndicatorfor GDP, scheduled commitments of individual countries are obtained from WTO secretariat.

20 7. Need and Opportunity for Service Trade Liberalization This section aims to study the needs and opportunities for liberalization from the perspectives of policy makers and business executives in support of countries designed, paced and sequential policies for progressive liberalization. General Background Member countries of the WTO are making commitments towards service trade liberalization based on the positive list approach offering all sectors, or specific sectors, in the forms of the market access and national treatment. The price or cost effects, and hence the welfare effects, of such liberalization, are being studied.

21 Negotiation Strategies Sequence of liberalization Cluster approach

22 The trade indexes provide information on the size and/or relative restrictiveness of policy regimes pertaining to the service industries (sub sectors). Basically, the service sector coverage in each country s schedule is an indicator of its policy stance revealing the higher the coverage, the more open the regime. The tariff equivalent of barriers could be mostly measured as simply the distance across countries in particular kinds of factor (services) inputs.

23 Cambodia Lao PDR On-line info. & data transfer Electronic mail Voice telephone Facsimile services CSD transmission PSD transmission On-line info. & data Private leased circuit E-data interchange Code & protocol conversion Enhanced facsimile Voice mail services Telegraph services Telex services Percentage of respondents Myanmar Thailand Myanmar Thailand

24 Life, accident, health insurance Lending of all types Financial leas ing No n-life ins urance Provi. & transfer of finance info. Acceptance of deposits All payment transmission Guarantees & commitments Reins urance & retroces sion Asset management Trading for own accounts Auxiliary services Advis ory & auxil. finance s erv. Settlement & clearing services Participation issuing securities Cambodia Money broking Percentage of respondents Thailand Money broking Participation issuing Settlement&clearing securities Advisory &auxil. services finance serv. Auxiliary services Trading for own accounts Asset management Reinsurance&retrocession Guarantees & commitments All payment transmission Acceptance of deposits Provi&transfer of finance info Non-life insurance Financial leasing Lending of all types Life, accidence, health insurance Lao PDR Myanmar

25 3 The Linkages between service Trade Liberalization and Export growth: A Gravity Model To investigate the effects of service trade upon economic growth of GMS economies using a gravity model of trade as follows: log Xij = f(logyi, log(yj), log STRIik, logdij, log tij, ε i)..(1) where Xij = Exports from country i to country j Yi = GDP of country i Yj = GDP of country j TRIik = trade restrictiveness index of country i in sector k d ij = distance between countries i and j. Tij = tij = trade cost facing for the exports from country i to country j ε ij = random error term

26 Panel Model Estimation - 6 cross-sections; average trade flows ( ) data -19 GMS countries trade partners; - Number of observation: Applying Eview6, cross-section-weigted regression are estimated to correct for heteroskedasticity problem.

27 Variable Coefficient Std. Errort-Statistic Prob. C LX LX LX LX Fixed Effects (Cross) CAM--C 4.94E-15 LAO--C 4.94E-15 MYA--C 4.94E-15 THA-- C 4.94E-15 VET--C 4.94E-15 CHN--C 4.94E-15

28 R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Sum squared resid F-statistic Durbin-Watson stat Prob(F-statistic) Unweighted Statistics R-squared Mean dependent var Sum squared resid Durbin-Watson stat

29 8. Conclusion Policy implications STRIs provide information on the size and/or relative restrictiveness of policy regimes pertaining to the service industries. It is an indicator of its policy stance revealing the lower the index, the more open the regime. STRIs highlight the prevalence of most restricted service sectors in the GMS economies. It can inform the policy makers in considering the sub-sectors in which liberalization are needed in terms of cluster of priority.

30 The tariff equivalent of barriers could be mostly measured as simply the distance across countries in kinds on price and cost within industries; of factor inputs; impact of liberalization STRI can be used for investigating the linkages among different sectors of economy apply general equilibrium model ; The trade modeling provide evidence of effects of STRI on trade flows.

31 THANK YOU

32 References Deardorff, Alan V. (2001). International Provision of Trade Services, Trade, and Fragmentation, Review of International Economics, 9(2), Dihel, Eschenbach and Shepherd (2006), South-South Service Trade OECD, TD/TC(2006)7/Final. Findlay (2001). Services Sector Reform and Development Strategies: Issues and Research Priorities, Study series no. 8, UNCTAD/UN, New York. Hoekman, B. (2000.). The Next round of service Negotiations: Identifying Priorities and Options, Review of Federal Reserve Bank of St. Loius. Hoekman, B. and C. Primo Braga (1997). Protection and Trade in Services: A Survey, Open Economies Review, vol. 8, pp Mattoo, Aaditaya (2001). Measuring Services Trade Liberalization and its Impact on Economic Growth: An Illustration, Policy Working Paper 2655, the World Bank and Sauve, P.(2003). Domestic Regulation and service Trade Liberalization, the World Bank.