Trade costs benefits of service policy reforms

Insights from the STRI provide new evidence and inputs for advancing empirical research and fostering better understanding of the trade costs implications of services trade barriers (Rouzet, Benz and Spinelli, 2017[3]); (Benz, 2017[4]); (Benz and Jaax, 2020[5]))

Research findings demonstrate that ambitious efforts to ease barriers to trade in services could yield substantial benefits by reducing trade costs for firms that provide services across borders. Figure 5 presents the trade costs implications of a hypothetical scenario where countries would reduce their STRI index by half compared to the best performer in each sector.

Figure 5 shows that benefits would accrue across all countries, but would be highest in emerging-market economies. The average trade costs reductions for OECD countries are estimated at -13%, while for nonOECD economies the benefits would be in the range of a -17% reduction on average. The highest potential benefits would be for Thailand (-30%), India (-28%), and Indonesia (-26%). These benefits could materialise in the medium to long term. New research suggests that the short-term benefits of services reform are smaller, as production and investment decisions need to adjust to new regulations (Benz et al., 2023 forthcoming).

Figure 5. Trade cost effects of services liberalisation by country

Trade cost implications of policy reforms in the STRI, 2022 (% of export values)

Note: The figure presents the trade cost implications of closing 50% of the gap to the best performing countries The following sectors were not covered in the estimations due to lack of data: broadcasting services, construction services, distribution services, motion pictures and sound recording services. 90% confidence intervals are computed using the standard errors of the trade elasticity estimated from a gravity model. Source: Calculations based on methodology in Benz and Jaax (2020[5]).

Service suppliers in sectors such as financial services, transport and professional services would benefit most from lowering trade barriers. In commercial banking, for instance, services trade costs could decline by 19% to 37% in the medium to long term (Table 1). Even the lowest estimations of reductions between 3% and 10% in logistics customs brokerage services could represent substantial savings for businesses in this sector.

Table 1. Trade cost effects of services liberalisation by sector

Trade cost implications of policy reforms in the STRI, 2022 (% of export values)

Note: The table presents the trade cost implications of closing 50% of the gap to the best performing countries. All estimates correspond to the median among all countries. The following sectors were not covered in the estimations due to lack of data: broadcasting services, construction services, distribution services, motion pictures and sound recording services.

Source: Calculations based on methodology in Benz and Jaax (2020[5])