Data Policies and Services TradeCEP IMF World Bank WTO workshop

Trade Policy, Inclusiveness and the Rise of the Services EconomyThursday, 26 March 2018

Erik van der MarelMartina Ferracane

Senior Economist at ECIPE Univesité Libre de Bruxelles (ULB) - Solvay Brussels School

Overview

• Motivation• Empirical strategy & results• Discussion

Data traffic

020

4060

80

IP tr

affic

BP/

mon

th (1

000)

1990 1995 2000 2005 2010 2015Year

What data policies are problematic?

Internet com services

Cloud-based data

processing

Digital content E-commerce IoT

Data measuresData protection and privacy x x x x xData localization x x x x

Cybersecurity measuresDisclosing source codes x x x xRestrictions on cryptography x x x x x

Censorship xIPR measures

Intermediate l iabil ity x x xAnciliary copyrights x x x

USITC (2017)

No. data measures (DTE)

020

4060

80

No

of m

easu

res

to C

BDF

1960 1980 2000 2020Year enacted

Literature

• Bauer et al. (2016), Ferracane and van der Marel (2018) | TFP• Goldfarb and Trefler (2018), … | Trade

Contribution

• Creating a data policy index• ECIPE | 64 countries, (Chapter 8 ECIPE’s DTRI)

• Impact of restrictive data policies on imports of data-intense services• WTO-UNCTAD-ITC | 18 sectors, including IPR

Data policy

• Data localization, local storage, local processing requirements (CB)• Data retention, DPO, administrative barriers on privacy (DR)• Excessively high costs measures / discriminatory • Could be replaced by less burdensome substitutes

Data policy index

Categories Type of measures Weights

1.1 Cross-border flow restrictions (CB) 0.51.1.1 Ban to transfer or local processing requirement 0.51.1.2 Local storage requirement 0.251.1.3 Conditional flow regime 0.25

1.2 Data retention (DR) 0.151.2.1 Minimum period 0.71.2.2 Maximum period 0.3

1.3 Subject rights on data privacy (DR) 0.11.3.1 Burdensome consent requirement 0.31.3.2 Right to be forgotten 0.3

Data policy index (cont’d)

Categories Type of measures Weights

1.4 Administrative requirements on data privacy (DR) 0.151.4.1 Data protection impact assessment (DPIA) 0.31.4.2 Data protection officer (DPO) 0.31.4.3 Data breach notification 0.11.4.4 Government access to personal data 0.3

1.5 Sanctions for non-compliance (DR) 0.051.5.1 Monetary fine above 250.000 euros or set as a percentage of revenue 0.51.5.2 Jail time 0.5

1.6 Other restrictive practices related to data policies (DR) 0.051.6.1 Other restrictive practices related to data policies 1

Data policy index (cont’d)

0.1

.2.3

Inde

x (0

-1)

2006 2008 2010 2012 2014 2016

Data policies CB DR

Digital services imports

ARG

AUS

AUT

BEL

BGR

BRA CAN

CHE

CHL

CHN

COL

CRI

CYP

CZE

DEU

DNK

ECU

ESP

EST

FIN

FRAGBR

GRCHKG

HRV

HUN

IDN

IND

IRL

ISL

ISR

ITA

JPN

KOR

LTU

LVA

LUX

MEX

MLT

MYS

NGA

NLD

NORNZLPAK

PAN

PERPHL

POL

PRT

PRY

ROU

RUS

SGP

SVK

SVN

SWE

THA

TUR

USA

VNM

ZAF

-20

24

6

ln(D

igita

l-in

tense

se

rvic

e im

po

rts in

GD

P (

20

15

))

0 .2 .4 .6 .8 1

Data policy index (2015)

Correlations(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

ln(SM) ln(SM) ln(SM) ln(SM) ln(SM) ln(SM) ln(SM) ln(SM) ln(SM) ln(SM)

OTHTRA PO&CO CONSTR FINA IPR TELEC INFO R&D TECH AUDIO

Data policy CB -5.076** -2.632** -0.882* 1.845*** -0.629** 1.013*** 1.406 -1.763* -1.173 -2.002*

-0.046 -0.015 -0.059 -0.002 -0.017 -0.008 -0.197 -0.086 -0.163 -0.073

Data policy DR 0.636 1.173 2.390*** -1.582* -1.116** -0.021 -3.945*** -1.486 0.73 0.337

-0.382 -0.452 -0.001 -0.088 -0.017 -0.965 -0.003 -0.101 -0.152 -0.492

FE country Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

FE year Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Observations 278 290 446 537 537 411 345 333 441 315

R2A 0.982 0.928 0.916 0.936 0.974 0.961 0.915 0.97 0.97 0.94

R2W 0.134 0.025 0.015 0.032 0.017 0.017 0.042 0.022 0.015 0.012

RMSE 0.26 0.481 0.59 0.434 0.311 0.265 0.562 0.435 0.312 0.462

Empirical strategy

• Use of sectoral data-intensities (follows Arnold et al., 2015; 2011) • Interacted with data policy index: data-linkage variable:

!"#" $%&'"() (DL)./0 = ln ∑5 ϛ7589:7∗ <"#" =>?%@A %&<)B.0

Empirical strategy (cont’d)

• Regressing log of services imports on data-linkage variable

!"(SM)'() = + + -DL'()01 + 2') + 3() +4'()

• 2006-16, lag, US intensities, strict clustering, robustness checks

Data-intensities

(1) US Census 2010 software expenditures *(2) US BEA IO Use Table for 2007 • Ratio over US BLS labour data, expressed as ln(D/L) ≠ DL

Data-intensity (US Census)

5.9

4.6

3.43.0

2.3

1.6 1.41.2

0.9 0.9 0.7 0.5 0.4 0.3 0.3 0.1 0.1 0.0

02

46

(D/L

) Dat

a-in

tens

ity U

S C

ensu

s &

BLS

Teleco

m

Compu

ter

Inform

ation

Financ

ial

Insura

nce

Intell

ectua

l prop

erty

Other tr

ansp

ort

Sea tra

nspo

rt

Audiov

isual

& relat

ed

Air tran

sport

R&D

Profes

siona

l & m

anag

Postal

& couri

er

Person

al, cu

ltural

& recr.

Tech.,

trade

-rel. &

othe

r

Mainten

ance

& repa

ir

Constr

uctio

nTrav

el

Data-intensity Cap (over labour)

Descriptive

Information

Sea transportAir transport

Maintenance & repair

Personal, cultural & recr.

Other transport

R&DTelecom

Construction

Insurance

Tech., trade-rel. & other

Intellectual property

Travel

Postal & courier

Computer

Financial

Professional & manag

Audiovisual & related

24

68

ln(P

er C

apita

Ser

vice

Impo

rts (2

015)

)

0 2 4 6ln(D/L) Data-intensity BEA IO Table 2007

Netherlands Services Imports and Data-intensity

Sea transportOther transport

InformationMaintenance & repair

Travel

Construction

Tech., trade-rel. & other

Postal & courier

Personal, cultural & recr.

Telecom

Air transport

Professional & manag

InsuranceFinancial

-20

24

6

ln(P

er C

apita

Ser

vice

Impo

rts (2

015)

)

-2 0 2 4 6ln(D/L) Data-intensity BEA IO Table 2007

Turkey's Services Imports and Data-intensity

Baseline results(1) (2) (3) (4) (5) (6) (7)

ln(SM) ln(SM) ln(SM) ln(SM) ln(SM) ln(SM) ln(SM)

ln(D/L) * Data policy -0.222***(0.001)

ln(D/L) * Data policy CB -0.384*** -0.379*** -0.267*** -0.509*** -0.338***(0.000) (0.000) (0.001) (0.000) (0.001)

ln(D/L) * Data policy DR -0.202* -0.016 0.076 -0.125 -0.019(0.094) (0.898) (0.460) (0.394) (0.879)

FE year-country Yes Yes Yes Yes Yes Yes YesFE year-sector Yes Yes Yes Yes Yes Yes YesType software in (D/L) NC NC NC NC NC Pur NC Lic C

Observations 7250 7250 7250 7250 6959 6959 7250R2A 0.78 0.78 0.779 0.78 0.777 0.777 0.78R2W 0.002 0.002 0.000 0.002 0.001 0.004 0.002RMSE 1.053 1.053 1.054 1.053 1.043 1.042 1.053

STRI control(1) (2) (3) (4) (5) (6) (7)

ln(SM) ln(SM) ln(SM) ln(SM) ln(SM) ln(SM) ln(SM)

ln(D/L) * Data policy -1.598***(0.001)

ln(D/L) * Data policy CB -2.078*** -1.707** -1.205*** -1.177*** -1.186***(0.007) (0.025) (0.003) (0.003) (0.003)

ln(D/L) * Data policy DR -2.022*** -1.464* -0.524 -0.579 -0.574(0.009) (0.062) (0.211) (0.170) (0.173)

STRI -3.236 -2.967 -3.750 -3.194 -0.966** -1.068** -1.106**(0.500) (0.536) (0.437) (0.507) (0.017) (0.026) (0.024)

FE year-country Yes Yes Yes Yes Yes Yes YesFE year-sector Yes Yes Yes Yes Yes Yes YesSTRI classification M1 M1 M1 M1 ENTIRE MA&NT DISCR

Observations 430 430 430 430 950 886 886R2A 0.757 0.755 0.754 0.757 0.763 0.753 0.753R2W 0.034 0.026 0.020 0.034 0.027 0.028 0.028RMSE 0.964 0.968 0.971 0.965 0.951 0.948 0.948

Data-intensity (BEA IO Use)

IO code Sector description

511200 Software publishers

517110 Wired telecommunications carriers

517210 Wireless telecommunications carriers (except satellite)

518200 Data processing, hosting, and related services

519130 Internet publishing and broadcasting and Web search portals

541511 Custom computer programming services

541512 Computer systems design services

541513 Other computer related services, including facilities management

Data-intensity (BEA IO Use)

87.1

31.8

21.2 20.1 19.4

9.2 9.0 7.1 5.4 5.2 3.1 3.1 2.9 1.8 1.6 0.9 0.6 0.5

020

4060

80

(D/L

) Dat

a-in

tens

ity B

EA

IO T

able

& B

LS

Teleco

m

Intell

ectua

l prop

erty

Tech.,

trade

-rel. &

othe

r

Financ

ial

Compu

ter

Inform

ation

Audiov

isual

& relat

ed

Sea tra

nspo

rtR&D

Profes

siona

l & m

anag

Insura

nce

Air tran

sport

Mainten

ance

& re

pair

Person

al, cu

ltural

& re

cr.

Other tr

ansp

ort

Postal

& co

urier

Constr

uctio

nTrav

el

Data-intensity (over Labour)

Data-intensity (BEA IO Use vs US Census)

Maintenance & repair

Sea transport

Air transport

Other transport

Postal & courier

TravelConstruction

Insurance

Financial

Intellectual property

Telecom

Computer

Information

R&DProfessional & manag

Tech., trade-rel. & other

Audiovisual & related

Personal, cultural & recr.

-20

24

ln(D

/L) D

ata-

inte

nsity

BE

A IO

Tab

le 2

007

-3 -2 -1 0 1 2ln(D/L) Data-intensity Census ICT 2010

BEA IO data-intensities(1) (2) (3) (4) (5) (6) (7)

ln(SM) ln(SM) ln(SM) ln(SM) ln(SM) ln(SM) ln(SM)

ln(D/L) * Data policy -0.876**(0.046)

ln(D/L) * Data policy CB -0.966 -0.709 -0.144 -0.736** -0.761**(0.140) (0.265) (0.134) (0.020) (0.016)

ln(D/L) * Data policy DR -1.322** -1.091* 0.167 -0.327 -0.34(0.045) (0.083) (0.162) (0.290) (0.265)

STRI -4.154 -3.523 -4.533 -4.319 -0.905** -1.073**(0.388) (0.467) (0.348) (0.375) (0.025) (0.028)

FE year-country Yes Yes Yes Yes Yes Yes YesFE year-sector Yes Yes Yes Yes Yes Yes YesSTRI class M1 M1 M1 M1 NO ENTIRE MA&NT

Observations 430 430 430 430 7250 950 886R2A 0.757 0.755 0.754 0.757 0.779 0.76 0.75R2W 0.034 0.026 0.020 0.034 0.000 0.017 0.018RMSE 0.964 0.968 0.971 0.965 1.054 0.956 0.953

Further robustness checks

• Baseline extention with WEF’s NRI• BaTIS database (BEA IO)

• World Bank’s STRI (cross-section)

Conclusion

• Barriers to the internet (technology) become trade barriers• Strict data policy frameworks, esp. cross-border policies inhibit trade• Which regulatory framework to go?

• Mattoo and Meltzer (2018)