International Conference on Broadening Economic Integration

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International Conference
on Broadening Economic Integration in
Southeast Asia Incorporating Services
Liberalization Institute of Policy Studies of
Sri Lanka 30-31 March 2009 Colombo, Sri Lanka

Asst. Prof. Dr. Khin Maung Nyunt Mae Fah
Luang University, Thailand Email
kmnyunt_at_mfu.ac.th
Export of Services Trade Liberalization on
Economic Growth of GMS Countries
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1. Introduction The objectives of the study

• 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

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2. Methodology

• Section 1. Constructing Services Trade
  Restrictiveness Index (STRI)
• Section 2. Estimating tariff equivalent of STRI
  applying the econometric modeling based on the
  price cost margin (PCM)
• Section 3. Needs and priority areas and
  sequencing for services trade liberalization
• Section 4. The Linkages between service Trade
  Liberalization and export growth A Gravity
  Model

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2.1 Constructing Services Trade Restrictiveness
Index (STRI)

• This paper applies 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).

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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 ?controlij ? STRIj ?ij
  ....... (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 ?. It is
• worth to note that

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• the existing methodology under CPM can offer
  either price or cost effect of liberalization
  based on the sign of ? in Equation 1. The
  positive value of ? indicates the presence of
  rent-creating barrier, that would encourage to
  raise the price but not affect costs. In
  contrast, a negative ? 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 100
  .. (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.

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2.3 The Linkages between service Trade
Liberalization and Export growth A
Gravity Model

• Section 3 The trade policy modeling to
  investigate the effects of service trade upon
  economic growth of GMS economies using a gravity
  model of trade as follows
• log Xij f(log(Yi/Y), log(Yj), log STRIi,
  (1-?)log(tij/Pj?i, eij ) ..(1)
  

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Notation of a Gravity Model

• where Xij Exports from country i to country j
• Yi GDP of country i
• TRIi trade restrictiveness index of country i
• Yj GDP of country j
• Y World GDP
• Pj General price level of country j.
• s Elasticity of substitution
• ?i country is expenditure share
• ? elasticity of exports with respect to
  distance
• d ij distance between countries i and j.

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The Linkages between service Trade Liberalization
and export growth A Gravity Model

• bm set of m constants
• tij trade cost facing for the exports from
  country i to country j
• z ij set of observable bilateral determinants
  of trade costs, usually covering geographical,
• cultural-historical and policy factors
• ?i and ?j exporter and importer fixed effects
  respectively.
• ? ij random error term

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3. Assessment of openness in selected services
sectors
Table 1 Rank in Exports and Imports of Services
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Table 2 Value of exports and imports of services
of GMS countries Million of US dollars
Source IMF, Balance of Payment Statistics
Yearbook 2007
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4. Regulatory Reforms in Services Sectors
Banking
Insurance
Telecommunications
PRICES CHARGES
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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).

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Table 3 Restrictiveness Index for Financial
Sector
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Table 4 Restrictiveness Index for
Telecommunication Setor
Fixed line Mobile
Internet Telecommunication

sector
Source Calculations of the Author
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• 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 Scheuele
  and provide STRI in terms of four mode of supply

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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.

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Price and cost effects of service trade
liberalization
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Table 6 Tariff Equivalent of STRI ()
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• 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 2004- 2006, 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 World Bank
  Development Indicator for GDP, scheduled
  commitments of individual countries are obtained
  from WTO secretariat.

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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.

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• Negotiation Strategies
• Sequence of liberalization
• Cluster approach

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Myanmar
Thailand
Cambodia
Lao PDR
Myanmar
Thailand
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Lao PDR
Cambodia
Myanmar
Thailand
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8. Conclusion

• Policy implication of the study
• 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 countrys schedule is an
  indicator of its policy stance revealing the
  higher the coverage, the more open the regime.
• In other words, in indexes highlight the
  prevalence of most restricted service sectors in
  the respective economy in GMS. It can inform the
  policy makers in considering the sub-sectors in
  which liberalization are needed in terms of
  cluster of priority. The tariff equivalent of
  barriers could be mostly measured as simply the
  distance across countries in particular kinds of
  factor (services) inputs.
• Finally, the TRIs can be used for investigating
  the linkages among different sectors of economy
  apply general equilibrium model which can also
  examine the impact of liberalization on price and
  cost within industries where it facilitate other
  kind of trade in further studies.

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• THANK YOU

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Eschenbach and Shepherd (2006), South-South
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Findlay (2001). Services Sector Reform and
Development Strategies Issues and Research
Priorities, Study series no. 8, UNCTAD/UN, New
York. Hoekman, B. and C. Primo Braga (1997).
Protection and Trade in Services A Survey,
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285-308. Mattoo, Aaditaya (2001). Measuring
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Paper 2655, the World Bank -------- and Sauve,
P.(2003). Domestic Regulation and service Trade
Liberization, the World Bank. Nyunt, K.M.
(2007) Advances in Measuring Trade Barriers in
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