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Data and Services Trade: Regulatory Options for a New Globalization
Erik van der Marel – ECIPE & ULB ECARES
IIFT ECONOMICS SOCIETY (IES)
November 15, 2021
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Digital-based globalization was already underway
.46
.48
.5
.52
.54
2005 2007 2009 2011 2013 2015year
Trade-to-Production LOWESS
Total Manufacturing Industries
Globalization, 2005-2015
.39
.4
.41
.42
.43
.44
2005 2007 2009 2011 2013 2015year
Trade-to-Production LOWESS
Total Information Industries
Globalization, 2005-2015
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Trade increasingly based on intangibles
-5
0
5
10
15
20
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Trade difference
Digital + Fin. + R&D. + Techn. + Audio
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Implication
• New intangible “factors” giving rise to trade (HO)
• New technologies, new comparative advantages
• MGI (2016): data as a flow. Data as a factor?
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Data centres (DC) (per 1 Mln population)
Source: Data Centre Map
DC/P
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Software-intensities Ferracane and van der Marel (2021)
6.0
2.9 2.9
2.2 2.22.0
1.6
1.0 0.90.6 0.5 0.5 0.4 0.4
0.2 0.2 0.1 0.0
02
46
Com
pute
r
Insu
ranc
e
Finan
cial
Telec
om
Inte
llectua
l pro
perty
Info
rmation
R&D
Air tra
nspo
rt
Sea tr
ansp
ort
Audiovis
ual &
related
Profe
ssiona
l & m
anag
Other
tran
spor
t
Posta
l & cou
rier
Tech.
, tra
de-re
l. & o
ther
Perso
nal, cu
ltura
l & re
cr.
Maint
enan
ce &
repa
ir
Con
stru
ction
Trave
l
Data-intensity Non-Cap (over labour)
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Data centres and digital services trade
ARE
ARG
AUSAUT
AZE
BEL
BGRBHR
BIH
BLR
BRA
CAN
CHE
CHL
CHN
COL
CRI
CYP
CZEDEU DNK
EGY
ESP
EST
FINFRA
GBR
GEO
GRC
GTM
HKG
HRV
HUN
IDN
IND
IRL
ISL
ISRITA
JORJPN
KAZ
KOR
LTU
LUX
LVA
MAR
MDA
MEX
MLT
MYS
NGA
NLD
NORNZL
OMN
PANPER
PHLPOL
PRTROURUS
SAU
SGP
SRB
SVK
SVN
SWE
THA TUR
UKR
URY
USA
VNM
ZAF
Coeff: 0.57, *** p<0.01, R2: 0.35
-28
-26
-24
-22
-20
-4 -2 0 2 4Data centres per 1Mn pop (log)
Correlation between Exports of Info. Services and Data Centres
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Baseline results (data matters for comparative advantage)
(1) (2) (3)
ln(SX) cj ln(SX) cj ln(SX) cj
ln(D/L) j * ln(DC/P) c 0.048**(0.047)
ln(D/L) j * ln(IXP/P) c -0.021(0.328)
ln(D/L) j * ln(SIS/P) c 0.042***(0.003)
ln(D/L) j * ln(GDPpc PPP) c 0.049 0.194*** 0.004(0.396) (0.001) (0.926)
FE Exporter Yes Yes Yes
FE Sector Yes Yes Yes
Observations 1426 1071 1778
R2A 0.877 0.891 0.880
R2W 0.018 0.033 0.016
RMSE 1.218 1.035 1.302
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Data restrictions digital services trade covered by data localization
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Countries imposing data localization policies
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Asia’s role in digital services trade and policyShare global digital services trade covered by countries imposing data localization policies by Asia and Rest of the World (2006-2019)
Number of data localization policies, local storage requirements, and conditional flow regime imposed by Asia and other countries (2019)
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Data-related policy restrictions
• Are data-related policy restrictions is burdensome?
• And if so, which ones are the most costly data-related restrictions?
• Data localization, local storage, and conditional flow regimes
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Data-related policy restrictions
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Empirical research
• Ferracane, M., J. Kren and E. van der Marel (2020) "Do Data Policy Restrictions Impact the Productivity Performance of Firms and Industries?", Review of International Economics, Vol. 28, No. 3, pages 676-722.
• Ferracane, M. and E. van der Marel (2021) “Do Data Flows Restrictions Inhibit Trade in Services?”, Review of World Economics, Vol. 157, Issue 4, pages 727-776.
➢ Yes, they do in the aggregate using composite indicator
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Further baseline results Van der Marel & Ferracane (ongoing)
(1) (2) (3) (4) (5)
ln(SM) ln(SM) ln(SM) ln(SM) ln(SM)
Data localization -0.763*** -0.411*** -0.687*** -0.415*** -0.464***
(0.000) (0.000) (0.000) (0.000) (0.000)
Local storage -0.039 0.071 -0.025 -0.007 0.086
(0.675) (0.406) (0.770) (0.936) (0.430)
Conditional flow 0.043 0.466*** -0.086* 0.275*** 0.635***
(0.327) (0.000) (0.051) (0.000) (0.000)
Intensity Int. 1 Int. 2 Int. 3 Int. 4 Int. 5
FE Country-year Yes Yes Yes Yes Yes
FE Sector-year Yes Yes Yes Yes Yes
Observations 12118 12118 12118 12118 12118
R2A 0.776 0.777 0.776 0.776 0.779
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Results so far
• Data localization
• Data storage – not for lower developed countries (RCA, LMC, etc.)
• Conditional flow regime
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Results so far
• Moreover, regulatory frameworks also matter
• Globally, three different data frameworks
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Models cross-border (pers) data transfersOpen model (green), Regulatory Safeguard (blue), Government control (red)
Source: Ferracane and van der Marel (2021b)
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3 data models and digital services trade
Source: Ferracane and van der Marel (2021). The dependent variable is bilateral digital services exports (DSX)
using the underlying gross trade data from the TiVA database. Sector groupings for digital services trade can be
found in the paper Annex Table A2, as well as other details of the econometric specification and methodology.
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Data protection
• EU’s DPD 1998 & GDPR 2018 • “Should offer guarantees ensuring an adequate level of protection essentially equivalent to that
ensured within the Union, in particular where personal data are processed”
• Independent supervision
• Cooperation mechanisms, with EU data protection authorities
• Enforceable rights, to EU citizens (data subjects), including redress
• Much more regulatory-driven than other countries granting “adequacy”
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EU adequacy decisions
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Adequacy’s trade impact
• Benchmark alternatives without adequacy
➢Binding Corporate Rules (BCRs): within-multinationals data transactions
➢Standard Contractual Clauses (SCCs): for outside the firm (outsourcing)
➢Derogations / consent
➢Practical business literature: alternatives are costly for trading firms*
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Baseline results, odt fixed effectsSpecification 1 Specification 2 Specification 3 Specification 4
EXP IMP EXP IMP EXP IMP EXP IMP
ADQ -0.030 0.043* -0.014 0.035** -0.012 0.035* -0.023* -0.013(0.103) (0.080) (0.298) (0.050) (0.401) (0.052) (0.069) (0.525)
RTA -0.023 -0.058 -0.000 -0.033 0.003 -0.032 0.006 -0.020(0.362) (0.153) (0.994) (0.143) (0.869) (0.150) (0.659) (0.271)
WTO 0.082 0.107 0.122** -0.030 0.126** -0.029 0.117*** -0.031(0.302) (0.175) (0.014) (0.798) (0.011) (0.800) (0.004) (0.762)
CON 181 -0.019 0.009 -0.005 -0.011 -0.004 -0.009 0.023 -0.005(0.488) (0.841) (0.777) (0.655) (0.804) (0.725) (0.132) (0.817)
CBPR -0.035 0.084** -0.036 0.015 -0.035 0.015 -0.036 0.033(0.277) (0.044) (0.242) (0.606) (0.242) (0.605) (0.135) (0.182)
FE O-year Y Y Y Y Y Y Y Y
FE D-year Y Y Y Y Y Y Y Y
FE O-D-Trend Y Y Y Y Y Y Y Y
Obs 537704 525790 562475 555126 562655 555291 564035 560295
R2 0.995 0.987 0.996 0.993 0.996 0.993 0.996 0.992
Finance ● ● ● ●Insurance ● ● ● ●IT & Info ● ● ● ●IPR ● ● ● ●Travel ● ● ●Cultural ● ●Business ●
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Wider effects Recent Kearney report
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3 models of cross-border data transfers1. Open model (green), 2. Regulatory Safeguard (blue), 3. Government control (red)
Source: Ferracane and van der Marel (2021b)
Different model Open model Conditional model Control model
USA
CAN
PHL
AUS
ARE
TWN
HKG
EUA
IND
CHE
ISR
SGP
NOR
UKR
KOR
JPN
MYS
BRA
CHN
RUS
IDN
VNM
KAZ
US
A
CA
N
PH
L
AU
S
AR
E
TW
N
HK
G
EU
A
IND
CH
E
ISR
SG
P
NO
R
UK
R
KO
R
JPN
MY
S
BR
A
CH
N
RU
S
IDN
VN
M
KA
Z
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Models of data processing Open model (green), Regulatory Safeguard (blue), Government control (red)
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3 data models and digital services trade
Source: Ferracane and van der Marel (2021). The dependent variable is bilateral digital services exports (DSX)
using the underlying gross trade data from the TiVA database. Sector groupings for digital services trade can be
found in the paper Annex Table A2, as well as other details of the econometric specification and methodology.
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Conclusion
• Digital-based services globalization going on (big)
• Intangibles such as data going to play a huge role
• Regulatory options best free of localization measures• How would India shift on localization and privacy issues?
• How would it pivot to larger markets for digital services trade?
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Three data models: Taxonomy
Cross-border data transfers Domestic data processing
OP: Open Transfers
and Processing Model
Self-certification; self-assessment schemes; ex-post
accountability; trade agreements and
plurilateral/bilateral arrangements as only means to
regulate data transfers.
Lack of comprehensive data protection
framework; lack of informed consent;
privacy as a consumer right.
RS: Regulatory
Safeguards Model
Conditions to be fulfilled ex-ante, including adequacy of
the recipient country, binding corporate rules (BCR),
standard contract clauses (SCCs,) data subject consent,
codes of conduct, among others.
Wide data subject rights; data subject
consent; right to access, modify and delete
personal data; establishment of data
protection authorities (DPAs) or agencies;
privacy as fundamental human right.
GC: Government
Control Model
Strict conditions including bans to transfer data cross
border; local processing requirements: ad hoc
government authorization for data transfers;
infrastructure requirements; ex-ante security
assessments.
Extensive exceptions for government access
to personal data; privacy vs security and
social order.