tag:blogger.com,1999:blog-5114185754541775272024-03-12T18:15:42.932-07:00BruxenomicsErik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.comBlogger37125tag:blogger.com,1999:blog-511418575454177527.post-5651931554115167792020-01-31T05:34:00.001-08:002020-02-05T03:52:35.183-08:00Market Structures in Services<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Services have long been thought to suffer from a
productivity problem. In fact, there is a long-standing concern that services
add little to the economy. Particularly compared to manufacturing, which is typically
more receptive to technological improvements, services productivity looks
bleak. </span></div>
<div style="text-align: justify;">
</div>
<span style="font-family: "georgia" , "times new roman" , serif;"></span><br />
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">What’s more, for various technical reasons a natural
tendency exists in many OECD economies for services to expand as these
countries become richer. </span></div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"></span><br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">This creates a double whammy: if productivity in services
are low to start with, plus a natural expansion of services exists in many rich
economies, then ultimately the sector becomes a real drag on overall economic
growth the richer we get. That’s the long-held view. </span></div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"></span><br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">However, this view becomes increasingly debunked. A <a href="https://www.bertelsmann-stiftung.de/de/publikationen/publikation/did/are-services-sick/">new report</a> that ECIPE has developed, which was commissioned by the Bertelsmann
Foundation, now shows that not all services are unproductive. In fact, some
services show healthy productivity growth patterns. </span></div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"></span><br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Therefore, good evidence is starting to come up proving the
point that services do not need to weigh down on the economy. On the contrary,
there is enough potential for services to perform better. The truth is that
there is a lot of productivity in many services sectors that remains
unrealized. </span></div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"></span><br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">What can explain this? For one, our study shows that the low
pick-up of digital technologies by services firms is an important factor to
blame. For instance, using Eurostat data, the report shows that the share of business
services firms in the UK and Poland that pick up digital technologies (as
measured by our self-developed E-business indicator) is only half the rate of
Denmark and Finland, as shown in the figure below.</span></div>
<a name='more'></a><br />
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<a href="https://1.bp.blogspot.com/-VVcKvQtwm2g/XjQsPN6_zII/AAAAAAAAA3A/8-vP34TtEWw4mYs0Qy24FPexb_chDXDZwCLcBGAsYHQ/s1600/Bertelsmann%2B1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="754" data-original-width="1384" height="348" src="https://1.bp.blogspot.com/-VVcKvQtwm2g/XjQsPN6_zII/AAAAAAAAA3A/8-vP34TtEWw4mYs0Qy24FPexb_chDXDZwCLcBGAsYHQ/s640/Bertelsmann%2B1.png" width="640" /></a></div>
<br />
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">However, it’s not only digital technologies that we need to
look at. Over the years, services have also become increasingly tradable, a
factor that further causes productivity growth to happen. Actually, it’s also thanks
to digital technologies that services have become more tradable in recent time,
but not enough as many countries still hold back their trade potential in
services. </span></div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"></span><br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Here comes the second explanation: regulatory policies in
services restricting their tradability across borders, in combination with all
sorts of other digital trade restrictions, such as those on online platforms, are
still relatively high for various countries. That is particularly true in
countries where firms exhibit a low pick up of digital technologies, as shown
in the report.</span></div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"></span><br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">As a result, there is a straightforward negative
relationship between the regulatory and digital barriers in services that
exists and the absorption rate of digital technologies by services firms. </span></div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"></span><br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">One conclusion of the report is therefore that both
categories of regulatory restrictions prevent markets to function as they
should and allow markets to pick up digital technologies. Digital penetration
is restricted, which hinders potential productivity gains from being realized in
services. </span></div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"></span><br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">But that’s not all what the report has to say. As regulatory
restrictions hold back trade and competition in services sectors, their markets
are likely to be distorted. This point is crucial. We show that distorted
markets structures in services, as measured as the “productivity gap”, i.e. the
unequal distribution of firm productivity in a market, actually exists in those
countries where services firms exhibit a relatively low pick-up of digital
technologies. </span></div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"></span><br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">So here there is a second straightforward negative
relationship: the greater the extent to which services markets are distorted, the
lower the absorption rate of digital technology by services firms, as illustrated
in the figure below.</span></div>
<b></b><i></i><u></u><sub></sub><sup></sup><strike></strike><span style="font-family: "georgia" , "times new roman" , serif;"></span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-vRdBBkf-oyE/XjQsW8tamZI/AAAAAAAAA3E/R9wsWIW_yHEkMpdM0R7uosjVlT-9BpKFgCLcBGAsYHQ/s1600/Bertelsmann%2B2.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="754" data-original-width="1384" height="348" src="https://1.bp.blogspot.com/-vRdBBkf-oyE/XjQsW8tamZI/AAAAAAAAA3E/R9wsWIW_yHEkMpdM0R7uosjVlT-9BpKFgCLcBGAsYHQ/s640/Bertelsmann%2B2.png" width="640" /></a></div>
<br />
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Services should in principle become more productive because
they can. If the market lacks the right incentives by having a low exposure
to competition and trade, firms are not inclined to pick up digital
technologies, which prevents productivity from being lifted in many services. </span></div>
<div style="text-align: justify;">
</div>
<span style="font-family: "georgia" , "times new roman" , serif;"></span><br />
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">In fact, we calculate that when services firms do use
digital technologies this effect is likely to be entirely nullified by the
distorted market structures in which they operate. That’s a forgone loss and
greatly inhibits services sectors from realizing their productivity potential.</span></div>
<div style="text-align: justify;">
<b></b><i></i><u></u><sub></sub><sup></sup><strike></strike><span style="font-family: "georgia" , "times new roman" , serif;"></span></div>
</div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-32684015981539419842019-09-17T02:23:00.003-07:002019-10-27T15:09:38.596-07:00China’s Digital Trade Success: Two Different Perspectives<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">In recent times there has been a lot of talk on how big
China’s digital trade actually is and to what extent it poses a threat to the
global economy. China is big and appears successful in digital trade, and
therefore the logic goes that China is <a href="http://www.chinadaily.com.cn/a/201904/09/WS5cac3974a3104842260b52e3.html">leading</a>
the field. Others are more <a href="https://bruegel.org/2018/05/how-big-is-chinas-digital-economy/">careful</a>
in cheering China’s digital success. The truth, however, is that there are two
versions to the story. One is centred around the fact that China is indeed big.
The other focuses on the extent to which China is actually competitive. The two
stories are connected, yet extremely different. </span></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"></span><br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Both narratives are respectively illustrated in panels A and
B below. </span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Panel A shows what I call the political story. This story
reflects the fear of China becoming the biggest digital trader in the world. The
panel shows digital services exports on the vertical axis (in USD log scale to
compile the pattern) while showing the level of development (in USD PPP) on the
horizontal axis for the year 2017. I take digital services and not digital
goods for two reasons: One is that services reflect the future of digital
trade; two is that the pattern for digital services and goods is the same, so
analysing both would merely be repetitive. (There is one big difference between
digital services and goods which I will address later). </span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">First things first though, an upward sloping line appears on
the vertical and horizontal axes in Panel A. It means that countries that
progressively become richer also become more successful digital services exporters.
How that works doesn’t matter for now. What matters is that the two indicators
are tightly connected. Countries such as the US and the UK are much more
developed and have greater levels of digital services exports; unlike Cambodia (KHM)
or Mauritius (MRT).</span><br />
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
</div>
<div style="text-align: left;">
<span style="font-family: "georgia" , "times new roman" , serif;">Panel A: China is big and will continue to grow bigger in
digital services trade…</span><br />
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-oVHOJ40XDAI/XYCoAlXwI3I/AAAAAAAAA0o/6edo-w2CrnUM7q8z1mXItiWJIouvvZwUgCLcBGAsYHQ/s1600/Panel%2BA.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="261" data-original-width="478" src="https://1.bp.blogspot.com/-oVHOJ40XDAI/XYCoAlXwI3I/AAAAAAAAA0o/6edo-w2CrnUM7q8z1mXItiWJIouvvZwUgCLcBGAsYHQ/s1600/Panel%2BA.png" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
<span style="background-color: white; color: black; display: inline; float: none; font-family: "georgia" , "times new roman" , serif; font-style: normal; font-variant: normal; font-weight: 400; letter-spacing: normal; text-align: left; text-decoration: none; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px;">Panel B: But China is uncompetitive and is likely to remain
so in digital services trade.</span><b></b><i></i><u></u><sub></sub><sup></sup><strike></strike></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-2ob60c-Souo/XYCopParm7I/AAAAAAAAA0w/S0TTGun4_9MUcENrKcn7rNLe6LocwA8zACEwYBhgL/s1600/Panel%2BB%2Bpng.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="261" data-original-width="478" src="https://1.bp.blogspot.com/-2ob60c-Souo/XYCopParm7I/AAAAAAAAA0w/S0TTGun4_9MUcENrKcn7rNLe6LocwA8zACEwYBhgL/s1600/Panel%2BB%2Bpng.png" /></a></div>
<div style="text-align: center;">
<span style="background-color: white; color: black; display: inline; float: none; font-family: "georgia" , "times new roman" , serif; font-size: x-small; font-style: normal; font-variant: normal; font-weight: 400; letter-spacing: normal; text-align: center; text-decoration: none; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px;">Source: Author's; WB Development Indicators.</span><b></b><i></i><u></u><sub></sub><sup></sup><strike></strike></div>
<div style="text-align: justify;">
</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">The remarkable thing about China, is that it has been a big
digital trader throughout history, and is likely to remain so. That can be seen
by the red dots which denote China from 1990 till 2017. At any year, China was
a far bigger digital exporter than any country with a similar level of
development. For instance, in 2000 China’s level of development was equal to
Cambodia’s level of development today, i.e. in 2017. Yet China’s export in
digital services were already bigger back then, than Cambodia’s is right now.</span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">What’s more remarkable, however, is that China has caught up
incredibly quickly with the world’s biggest digital traders. Panel A shows that
since the 1990s China has steadily approached the EU, US and UK. All three are
richer and have also historically shown a high level of digital services
exports. But China, standing at a lower level of development, has managed to
increase its export capacity in digital services, to a level in 2017 where it
reached a par with the UK. The EU and US are still bigger digital traders, but
it will only take about another 10 years before China reaches an equal footing
with these two trade giants. </span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">That has repercussions in the political sphere, particularly
when negotiating trade deals. Bigger countries naturally have more weight in
trade negotiations. However, they do not always naturally have a bigger trade
basket, as they have bigger domestic markets which they can rely on. China’s
case is different, as it has traditionally used trade as a successful strategy
for economic development. Today the EU is still the biggest exporter of digital
services, ahead of the US and China. It therefore currently has the biggest heft
when negotiating digital services trade issues; far bigger for instance than the
UK will ever have.</span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">In short, the political economy discourse about the “fear”
of China’s digital trade success, which one can read daily in the popular media,
stems in great part from the sheer size of the country. Don’t get me wrong,
size does matter, and it certainly makes a difference on how successfully countries
like Guatemala or China can negotiate in trade negotiations. For instance,
China has been a big trader in the past of ICT or high-technology goods. Indeed,
at all levels, it has been a bigger trader in digital goods than all other
countries, including the EU and US (Panel C). As such, China has influence on
international digital trade negotiations.</span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">However, there is another perspective on the matter, which I
call the economic story. That story is reflected in Panel B. Economists have
always been sceptical of the idea of using plain magnitudes expressed in nominal
or absolute numbers. Rather, economists tend to transmit their messages in “normalized”
numbers, so that any form of size, quantity or volumes are instead computed as
ratios, weights or proportions. The big reason for doing so is that otherwise
numbers may be biased in favour of other characteristics, such as in our case the
huge size of a country. After all, China may be big, but that may not tell us
anything about its true economic success. </span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Panel B investigates how competitive China is once we
disregard its sheer size. Note that I again analyse digital services trade, as
my view is that this is where the future of trade is heading.</span><span style="font-family: "georgia" , "times new roman" , serif;"> </span><span style="font-family: "georgia" , "times new roman" , serif;">Interestingly, using similar metrics as in Panel A, the
story gets reversed. To correct for China’s size when using its nominal numbers
of digital service exports, I divide this variable by its population.</span></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"></span><br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Through
that way I obtain a more neutral representation of the true extent of China’s
export success, which economists typically call the per capita exports. It’s a
much fairer way of comparing China with other countries, as smaller countries
trade a much smaller amount. Once we divide the absolute size of digital
services exports by the number of people in each country who potentially trade,
an undistorted picture of the true strengths of digital trade exports is
presented. In other words, it shows the real digital export competitiveness. </span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Looking at Panel B, it becomes clear that China’s real
digital trade competitiveness is actually much lower compared to using non-normalized
trade figures. In fact, the red dots that denote China’s development over time,
are all placed below the dashed fitted values line, which represents the
“average” trend between how rich countries are at a certain level and their per
capita digital services exports. Compared to other countries, China is less
competitive in digital services exports than can reasonably be expected based
on its level of wealth. </span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">That was true in the past and is true in the present. For
instance, back in 2000, when China shared a similar level of development as
Cambodia today, the latter exported more digital services when the size of the
market was accounted for. Similarly, in 2017, Guatemala was able to export more
digital services on a per capita basis than China did in 2007; when the two
countries shared a similar level of economic development. Today, China is as
rich as Serbia or Costa Rica, but the two latter countries are far more
competitive regarding digital services trade, given their rate of economic
development. </span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">What’s more, there are little signs that China’s
competitiveness position is approaching any average midpoint value (dashed
line), based on what could be expected when taking into account the level of
development of all other countries in the sample. Nor does China approach the
competitiveness position of the EU, the UK or the US. (Note that the US suffers
from a relatively low level digital services export competitiveness, meaning
that for whatever reason the country is performing below its potential given
its already massive success.) In fact, the EU is in a pretty good shape as it
is placed above the fitted values line – although several other countries are
doing much better still. </span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">So, what should the conclusion be when putting these two
panels together? Well first, one big message from this exercise is to show that
one shouldn’t conflate size with “real” size. Yes, China may be big, and the
economic size of China may disturb us from time to time, but it’s another thing
to claim that because of its size the country is going to be a giant success in
all manners of our digital life, and take over the digital world economy. Sure,
China has success in some parts, and perhaps many parts of the digital economy,
but not in all parts. In goods, the country is a major success, and so too it
seems in digital goods (compare panels C and D in the annex). However, for
digital services the story is a different one. </span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Second, the fact that China is precisely less competitive in
services has implications for future trade. The world economy is increasingly
shifting into an invisible one in which services, data, technology ideas and
know-how are replacing goods, commodities and other physical inputs. In this
intangible world, China appears to be far less successful compared to other big
trade giants. Moreover, China is also very <a href="https://ecipe.org/wp-content/uploads/2018/05/DTRI_FINAL.pdf">restrictive</a>
when it comes to digital trade, data and internet technologies. Different
digital standards and restrictive digital policies, such as China has today,
are harmful for its digital services trade and eventually real export
competitiveness (<a href="https://ecipe.org/publications/do-data-policy-restrictions-inhibit-trade-in-services/">Ferracane
and van der Marel</a>, 2018). </span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Therefore, it remains to be seen whether China’s isolated
stand regarding data and the internet will prove to be beneficial for improving
its export competitiveness the long run. </span><br />
<br />
<br />
<span style="font-family: "georgia" , "times new roman" , serif;"><span style="font-family: "georgia" , "times new roman" , serif;">Panel C: China is big and will continue to grow to be the
biggest in digital goods trade…</span></span><br />
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-0CNJMk5lSpA/XYCopMAEvwI/AAAAAAAAA00/UaIpsfB0trIVh8O6p2PPn6DOcaMKOylsQCEwYBhgL/s1600/Panel%2BC%2Bpng.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="261" data-original-width="478" src="https://1.bp.blogspot.com/-0CNJMk5lSpA/XYCopMAEvwI/AAAAAAAAA00/UaIpsfB0trIVh8O6p2PPn6DOcaMKOylsQCEwYBhgL/s1600/Panel%2BC%2Bpng.png" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<span style="font-family: "georgia" , "times new roman" , serif;"></span><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span>
<span style="font-family: "georgia" , "times new roman" , serif;">Panel D: And China is competitive and is likely to remain so
in digital goods trade.</span><br />
<div style="text-align: left;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
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<span style="background-color: white; color: black; display: inline; float: none; font-family: "georgia" , "times new roman" , serif; font-size: x-small; font-style: normal; font-variant: normal; font-weight: 400; letter-spacing: normal; text-align: center; text-decoration: none; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px;">Source: Author's; WB Development Indicators.</span><span style="background-color: white; color: black; display: inline; float: none; font-family: "georgia" , "times new roman" , serif; font-size: 16px; font-style: normal; font-variant: normal; font-weight: 400; letter-spacing: normal; text-align: center; text-decoration: none; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px;"> </span><b></b><i></i><u></u><sub></sub><sup></sup><strike></strike></div>
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Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-63058727937902841392019-06-05T03:02:00.000-07:002019-06-05T03:47:31.221-07:00Solving EU’s Amazon Paradox<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="text-align: left;">
<span style="font-family: "georgia" , "times new roman" , serif;">Here's a question for you. </span></div>
<div style="text-align: left;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">I rec</span><span style="font-family: "georgia" , "times new roman" , serif;">ently attended a seminar about Europe’s digital future where I was asked: “How come we have the Amazon Paradox in Europe?”. To explain, the Amazon Paradox involves the package delivery time between EU member states that is excessively long compared to the US. In short, if I want to send a package from Brussels to say Sofia, it travels for up to 8 days, whereas in case I would send it to the US, it only takes 2 days.</span></span><br />
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">How is this possible? That was the
question. To give context, the seminar itself was about Europe 4.0. It discussed
the way in which Europe can be made more competitive through the use of new
digital technologies. The automatic response to the question was that many
European countries still uphold digital trade restrictions. Given that Amazon
is an online platform, it must be that digital trade restrictions such as
strict intermediate liability regimes or data policies are the culprit. Right?<o:p></o:p></span></span></div>
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<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">After all, our <a href="https://ecipe.org/publications/patterns-of-trade-restrictiveness/">own research</a> showed that several
restrictions regarding e-commerce platforms are still relatively high for some
EU member states. Of the 64 countries analysed worldwide, European countries
such as France, Germany and Italy show a level of restrictiveness that is
placed above average. So, the problem of delayed package delivery in Europe
must surely have something to do with these restrictions. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">As a matter of fact, I don’t think so. Yes,
Amazon is a digital platform and it may encounter some digital barriers,
perhaps even in some digital services such as digital finance, but my
assessment is that the bulk of the package delivery problem lies somewhere
else, namely in Europe’s network services. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">Accessing Amazon’s website and order
something does not seem to me any problem. What’s more problematic are all the
services that lie behind the internet transaction. The package needs to travel
from one destination to another. It is most likely to use postal delivery
services or any other transport and storage services. That’s exactly where the
bottle neck seems to appear. In many European countries, these network markets
are still largely uncompetitive. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">A simple snapshot of some OECD numbers is
telling. The picture below gives a screenshot of the OECD’s Product Market
Database that records the level of non-digital regulatory restrictiveness in
network services. The message from these numbers is quite interesting. For
instance, although the market for postal service is entirely free for new firms
to enter, which gives the impression that competition is optimal, the yellow
column indicates that public ownership restrictions are still rampant. <o:p></o:p></span></span></div>
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<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span>
<a href="https://1.bp.blogspot.com/-uGPSFnGg-eo/XPeUV9Ls4nI/AAAAAAAAAy0/7WQY2JPtGMIVWaWRJtgVxVegwuLNm7J9gCLcBGAs/s1600/OECD%2BPMR%2B2.png" imageanchor="1" style="clear: left; float: left; font-family: "Times New Roman"; margin-bottom: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="441" data-original-width="781" src="https://1.bp.blogspot.com/-uGPSFnGg-eo/XPeUV9Ls4nI/AAAAAAAAAy0/7WQY2JPtGMIVWaWRJtgVxVegwuLNm7J9gCLcBGAs/s1600/OECD%2BPMR%2B2.png" /></a><span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span>
<span style="font-family: "georgia" , "times new roman" , serif;">Restrictions on public ownership includes
the extent to which State-Owned Enterprises (SOEs) are still present in the
postal market, how much governments are generally involved with the operations
of the postal incumbent firm, or whether they have a direct control over the
postal services company. Restrictions in this field also relate to how these
SOEs are governed. For instance, whether the state or provincial governments
have special voting rights (e.g. golden shares) in at least one firm.</span><br />
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span>
<span style="font-family: "georgia" , "times new roman" , serif;">The scoring of this restrictiveness index
ranges between 0-6, with increasing levels indicating higher levels of
regulatory barriers. Looking at the yellow column, it becomes clear that many
European countries have a level of restrictive regulations in the postal market
that stands at 5. True, numbers are from 2013 (latest year available), but
nothing suggest that all these countries have quickly reformed their markets
over the last couple of years. Similar conclusions are true for rail transport
services.</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span>
<span style="font-family: "georgia" , "times new roman" , serif;">The European Commission is also very aware of the issue. As stated in a recent report that was commissioned by its in-house staff: “One of the core objectives of the EU’s Digital Agenda is to promote cross-border e-commerce…” The report continues: “The Commission identified expensive and unreliable cross-border delivery as one key challenge in the future development of e-commerce”. Auch!</span></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span>
<span style="font-family: "georgia" , "times new roman" , serif;">Another report commissioned by the European Commission states the problem in clear numbers. It looked at the price differences between what it would cost to send a package within and across EU members states. And guess what, this differential price in package delivery is equal to a factor of 3.71. This comes down to an average price difference of 471 percent for packages sent to another country in the EU compared to sending domestically. </span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB"></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">In short, these numbers point out that the international postal market delivery services are still largely uncompetitive. I think that this is the main driving force behind Europe’s Amazon Paradox. With price differences so high, it reflects that the market suffers from a lack of competitive forces from which indeed e-commerce companies like Amazon encounter a paradox: although the distance to the US is larger, package delivery is faster. </span></div>
</div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com4tag:blogger.com,1999:blog-511418575454177527.post-68793000113119168642019-01-18T06:27:00.000-08:002019-01-22T06:30:53.961-08:00Online Platform Restrictions and Small Firm Exports<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="text-align: left;">
</div>
<div style="height: 0px; text-align: left;">
</div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Stricter rules on online platforms restrain
potential trade, especially for smaller businesses. This is because online platforms
facilitate export and import by lowering transaction and information costs.
Ultimately, restrictions on online platforms limit the capacity of the ICT sector
more generally to contribute to the overall economy.</span><br />
<span style="font-family: georgia, "times new roman", serif;"><br /></span>
<span style="font-family: georgia, "times new roman", serif;">A recent study by </span><span class="MsoHyperlink" style="font-family: georgia, "times new roman", serif;"><a href="https://www.mercatus.org/publications/trade-and-immigration/businesses-facebook-and-propensity-export-australia">McDaniel
and Parks (2019)</a></span><span style="font-family: georgia, "times new roman", serif;"> shows that, among those businesses that export, the
share of firms using Facebook can be high for some countries. For instance, in Czech
Republic, Portugal, Turkey, and South Korea more than 15 percent of businesses that
export are also on Facebook. This share is even higher for small and medium
sized firms (SMEs). Therefore, it seems that the use of online platforms such
as Facebook creates a stronger propensity to export compared to other firms.</span></div>
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB">
</span></span>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB"><br /></span></span></div>
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB">
</span><span lang="EN-GB"><div style="text-align: justify;">
Once a firm finds itself on a digital
platform such as Facebook, its presence can help to create visibility and to
capitalize on the platform’s online network, eventually reducing information
and search costs for companies and consumers. According to the study, some
developing countries profit the most from being present on Facebook. In Bangladesh
and Pakistan, for instance, 20 and 18 percent of businesses that export are
also present on this social app.</div>
<div style="text-align: justify;">
<br /></div>
</span><span lang="EN-GB"><div style="text-align: justify;">
However, to make use of online platforms is
not always an easy task. Certain policies inhibit companies from accessing
online platforms, especially foreign ones. These policies often create unnecessary
costs for businesses, particularly for smaller firms as they make it difficult
to intensify exporting abroad. Moreover, and perhaps even more importantly, the
presence of online platforms themselves is not a given in some countries reducing
the ability of small firms to promote their businesses online in the first
place.</div>
<div style="text-align: justify;">
<br /></div>
</span><span lang="EN-GB"><div style="text-align: justify;">
This phenomenon is a problem if we consider
an increasingly strict regulatory environment for online platforms. In a <a href="https://ecipe.org/publications/patterns-of-trade-restrictiveness/">recent study</a> by me and my co-author Martina Ferracane, we show that this is actually
true for quite a number of countries.</div>
<div style="text-align: justify;">
<br /></div>
</span><span lang="EN-GB"><div style="text-align: justify;">
The study maps the regulatory environment
for online platforms in terms of trade restrictiveness for 64 countries. More
precisely, we measure the online platform trade restrictiveness using the
information available in the <span class="MsoHyperlink"><a href="http://ecipe.org/dte/dte-report/">Digital Trade Estimates</a></span>
database, from which we have already developed the Digital Trade
Restrictiveness Index (DTRI). By selecting only those policy measures that affect
online platforms and by finetuning the methodology, we have created the Digital
Platform Restrictiveness Index (DPRI).</div>
<div style="text-align: justify;">
<a name='more'></a></div>
</span><span lang="EN-GB"><div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
In the analysis, we focus on three
different categories of platforms, namely search engines, e-commerce and social
media platforms. For the three categories we create separate indexes, each
covering only for the restrictive cost measures that affect the category specifically.
Taking the DPRI index for social media platforms and relating them to the findings
presented by the McDaniel and Parks study on the share of small business active
on Facebook, an interesting pattern appears.</div>
<div style="text-align: justify;">
<br /></div>
</span><span lang="EN-GB"><div style="text-align: justify;">
That pattern is shown in the left-hand
panel of the figure below. On the horizontal axis of this figure we plot the DPRI
for social media platforms, whereas on the vertical axis we plot the share of
small firms being present on Facebook from McDaniel and Parks. Clearly, a
negative relationship appears; that is, countries with stricter trade regulations
on platforms have a much lower share of small businesses being on Facebook.</div>
<div style="text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-V3-KvKXeU8g/XEHh40Sut8I/AAAAAAAAAtc/6LmFJy5GALMUTZCamxyOHjHfsjpTsmpXQCLcBGAs/s1600/Graph%2B5.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="759" data-original-width="1393" height="347" src="https://1.bp.blogspot.com/-V3-KvKXeU8g/XEHh40Sut8I/AAAAAAAAAtc/6LmFJy5GALMUTZCamxyOHjHfsjpTsmpXQCLcBGAs/s640/Graph%2B5.png" width="640" /></a></div>
<div style="text-align: left;">
Source: McDaniel and Parks (2019) and Ferracane and van der Marel (2019)</div>
<div style="text-align: justify;">
<br /></div>
</span><span lang="EN-GB"><div style="text-align: justify;">
When restricting our group of countries to
non-OECD countries only, which mainly captures emerging economies such as
Indonesia, India and Vietnam, this relationship becomes even starker with less
variation across countries. This can be seen in the right-hand panel of the
figure above. Countries such as Russia, Vietnam and India have high regulatory
restrictions compared to Brazil, South Africa or the Czech Republic. The latter
countries have a higher share of small firms present on Facebook.</div>
<div style="text-align: justify;">
<br /></div>
</span><span lang="EN-GB"><div style="text-align: justify;">
As a result, our study makes clear that the
regulatory regime for online platforms matters and in fact appears to play an
important role for firms to exploit their businesses effectively online and
export. But there is more. Our paper also shows that stricter regulations on
online platforms is more generally negatively associated with the ability of ICT
as such to contribute to the economy, namely productivity, Higher restrictions
in online platforms reduces the likelihood of all kinds of firms to make use of
ICT. </div>
<div style="text-align: justify;">
<br /></div>
</span><span lang="EN-GB"><div style="text-align: justify;">
Of course, the result is consistent with the outcome described in McDaniel
and Parks: if small firms are unable to go online because of burdensome
regulations applied to digital platforms, the result will be that small firms
will fail to experience an extra boost of productivity and will forego any
increase of exports. Therefore, a strict regulatory environment on the use of
ICT services ultimately restrict firms in exporting their goods and services.</div>
</span></span><br />
<div class="MsoNormal" style="text-align: left;">
<span lang="EN-GB">
</span></div>
<div style="text-align: left;">
</div>
</div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-63631399467467435412018-12-13T06:41:00.000-08:002019-02-26T02:16:10.033-08:00Productive services with the help of internet technologies. <div dir="ltr" style="text-align: left;" trbidi="on">
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span style="background-color: white; color: #14171a; white-space: pre-wrap;">See here my new piece for the Asian Development Bank Institute's blog: Productive services with the help of internet technologies: <a href="https://bit.ly/2rzBOZB">https://bit.ly/2rzBOZB</a></span></span></div>
<div style="text-align: justify;">
<span style="background-color: white; font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span style="background-color: white;">It's about how new digital technologies can "cure" the long-standing concer</span>n of services suffering from low productivity growth. That's not longer a necessary development.</span></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Yet, to let new digital technologies do what's best to make services more productive, policies need to be set right. Read the blog for why and how that can be done. </span></div>
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span>
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-39213131714880982642018-11-12T08:39:00.001-08:002018-11-12T08:41:05.726-08:00Global Value Chains and Digital Trade Restrictions Part II<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Last month, I wrote
about how digital trade restrictiveness of countries is associated with how
much countries participate in Global Value Chains (GVCs). This follow-up column explains how
digital trade restrictions are also strongly associated with <i>where</i> countries participate in GVCs. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">In another <span class="MsoHyperlink"><a href="https://bruxenomics.blogspot.com/2018/02/supply-chain-complexity-ict.html#more">blog
post</a></span>, I made clear that the use of ICT in GVCs is unrelated with the
complexity of value chains. Instead, ICT-intensity of GVCs relates better with
the relative position of industries in value chains. That is, <i>where</i> industries are most active in
GVCs. </span><span style="font-family: "georgia" , "times new roman" , serif;">In fact, industries closer to consumers are often industries that are
also relatively more ICT-intense. They are placed more downstream. Vice versa,
industries that are more upstream often appear less ICT-intense. </span><span style="font-family: "georgia" , "times new roman" , serif;"> </span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Now, this pattern is also
reflected with regards to countries’ digital trade policy framework: countries
that are less restricted across the whole range of digital trade policies are more
active in supply chains that are closer to the final consumer, i.e. more
downstream. On the other hand, countries that are more restricted with digital
trade policies are often trading more in upstream value chains, being further away
from final consumers. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;">This can be seen in the figure below. The
vertical axis plots a measure of the relative position of countries in their supply
chains. Higher values on this indicator means higher GVC “upstreamness” of countries,
trading more in GVS that are more upstream. The horizontal axis plots ECIPE’s
Digital Trade Restrictiveness Index (DTRI) with higher values reflecting
greater digital trade restrictiveness. </span></span><br />
<span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span>
<span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;">The graph shows that countries such as Indonesia, India, Brazil and Turkey are more restricted regarding digital trade policies whilst also trading more upstream in GVCs. Contrary, countries which are less restricted in digital trade policies are trading more downstream in their supply chains. They are closer to the final destination of the good (or service), i.e. the consumer.</span></span><br />
<span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div style="text-align: justify;">
<span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="separator" style="clear: both; text-align: justify;">
<a href="https://2.bp.blogspot.com/-OJrLjR3YK80/W-mqWcHqBVI/AAAAAAAAAsk/6jJ36CU0_VEKP85cpKu4tBzRmmKkV7FPwCLcBGAs/s1600/GVCs%2Band%2BDTRI%2B3.bmp" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="619" data-original-width="1125" height="352" src="https://2.bp.blogspot.com/-OJrLjR3YK80/W-mqWcHqBVI/AAAAAAAAAsk/6jJ36CU0_VEKP85cpKu4tBzRmmKkV7FPwCLcBGAs/s640/GVCs%2Band%2BDTRI%2B3.bmp" width="640" /></a></div>
<div style="text-align: center;">
<span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif; font-size: x-small;">Source: ECIPE; COMPNET</span></span></div>
<div style="text-align: justify;">
<span style="line-height: 107%;"></span></div>
<div class="MsoNormal">
<span style="mso-ansi-language: EN-US;"><span style="font-family: "georgia" , "times new roman" , serif;"></span></span></div>
<br /><a name='more'></a><span style="font-family: georgia, "times new roman", serif; text-align: justify;">How does it work? Why
is it that restrictive digital policies are associated with supply chain
activities that are more upstream and not downstream? One big reason is
services. Services are a lot more digital and </span><span class="MsoHyperlink" style="font-family: georgia, "times new roman", serif; text-align: justify;"><a href="https://ec.europa.eu/newsroom/document.cfm?doc_id=44392">ICT-intense</a></span><span style="font-family: georgia, "times new roman", serif; text-align: justify;">
than many goods. Many countries that you see in the big circle are in fact countries
that are very services oriented. They are also the ones which are less
restricted in digital trade.</span><br />
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-ansi-language: EN-US;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
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<span style="mso-ansi-language: EN-US;"><span style="font-family: "georgia" , "times new roman" , serif;">Surely, these are
sheer correlations, not yet showing causality. Instead of low digital
restrictions that leads countries to specialize in more downstream activities
in GVCs, it could be that countries which already were more open in digital
trade, and also more active in services in the first place, have over time
lowered digital trade restrictions. <o:p></o:p></span></span></div>
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<span style="mso-ansi-language: EN-US;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
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<span style="mso-ansi-language: EN-US;"><span style="font-family: "georgia" , "times new roman" , serif;">No matter in which
direction this link is running, given that many services are digital-intense,
lower digital restrictions contributes in helping countries to realize greater
level of growth through services. Services are increasingly recognized being a
development tool for countries as they help them realizing greater economic
growth through greater productivity effects. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-ansi-language: EN-US;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-ansi-language: EN-US;"><span style="font-family: "georgia" , "times new roman" , serif;">This is particularly true for
under-developed countries as well as emerging countries, of which a few are
shown in the graph such as Turkey and India. They are currently the ones which more
digitally restricted. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-ansi-language: EN-US;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-ansi-language: EN-US;"><span style="font-family: "georgia" , "times new roman" , serif;">India is an
interesting example. The country is discussing further <span class="MsoHyperlink"><a href="https://www.reuters.com/article/us-india-data-localisation-exclusive/exclusive-us-senators-urge-india-to-soften-data-localization-stance-idUSKCN1MN0CN">restricting</a></span>
its digital sector, but India is also known for being a big exporter of digital
services. India could therefore capitalize on its ICT services sector to
connect better to its existing GVCs to move more downward left in the figure to
join other OECD countries. However, India won’t if it increases restrictions in
digital trade. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-ansi-language: EN-US;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-ansi-language: EN-US;"><span style="font-family: "georgia" , "times new roman" , serif;">Of course, some
countries are naturally placed more upstream in GVCs than others, but not
India, nor Turkey or any countries in the top-right corner of the figure. Therefore,
increasing the already high level of digital restrictiveness would represent a missed
economic opportunity for these countries. That a pity, because the digital
sector can bring many of them!</span><o:p></o:p></span></div>
<span style="font-family: "georgia" , "times new roman" , serif;"></span></div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-72877856706840799782018-10-18T08:08:00.000-07:002018-10-19T00:40:00.771-07:00Global Value Chains and Digital Trade Restrictions Part I<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-family: Georgia, Times New Roman, serif;">Today, I gave a talk at Bruegel’s Asia Europe Economic Forum (AEEF) on Global Value Chains (GVCs) and restrictions on the use of digital technologies across borders. It was part of a panel session that was dedicated to GVCs and the 4th Industrial Revolution. It was a great opportunity to connect our Digital Trade Restrictiveness Index (DTRI) with that of GVCs.</span></div>
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<span style="font-family: georgia, times new roman, serif;"><span style="text-align: justify;"></span></span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;">The underlying question of my presentation
was: How much of an important factor are digital trade restrictions for GVCs?
As it turns out, a lot!</span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;">When talking about the 4th industrial revolution, we often talk about many different concepts such as
Artificial Intelligence (AI), Internet of Things (IoT), big data and cloud
computing. One commonality these technologies have is the use of data over the
internet. The figure below shows which sectors in the economy use a lot of data, and are therefore intense in the use of digital technologies.</span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;">Interestingly, besides many services that
are data-intense, some advanced GVCs are in fact also very data-intense
(something I referred to in February this year in another blog post). Computer electronics,
Machinery, Chemicals and Motor vehicles are sectors that thrive on GVC networks and the figure shows that these sectors are also very data-intense by using lot of digital technologies. </span></div>
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<span style="font-family: "georgia" , "times new roman" , serif; text-align: left;">Now, how do digital trade restrictions come
into the story? The answer is simple: as these GVC sectors use a lot of digital
technologies, digital trade must surely be a factor of importance of how
competitive such sectors can be. After all, open markets provide firms with the
best available technologies through competitive goods and services, and thus
also competitive digital goods and services.</span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">That’s indeed the case. That becomes visible
in the following figure. In there, the DTRI is plotted on the horizontal axis, measuring
the restrictiveness in digital trade for a host of countries; whilst the
vertical axis plots a measure of GVC participation, which is nothing else than an
advanced indicator that measures the extent to which countries show more or
less trade in GVCS.</span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;">As we slide along the horizontal axis from
left to right, we see that countries which are more restricted are also showing
a lower participation in GVC sectors. Conversely, if we move along the
horizontal axis from right to left, we see that countries with lower levels of digital trade restrictions precisely have a higher level
of GVC participation. Therefore, digital trade restrictions really seem to
matter for participating and being competitive in GVCs. </span></div>
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<span style="clear: left; float: left; font-family: "georgia" , "times new roman" , serif; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="352" data-original-width="639" src="https://2.bp.blogspot.com/-7rYphD7dY-o/W8ifw673guI/AAAAAAAAAsE/V2-rrMr8tUs6ycrZECvjddY9Mp0IjWZdQCLcBGAs/s1600/GVCs%2Band%2BDTRI.png" /></span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;">There was more in my presentation that
warrants another blog post. But one thing I would like to tell is that besides <i>how much</i> a country participates in GVCs,
digital trade restrictions also appear to matter a lot for <i>where</i> countries are active in GVCs. So not only do digital trade
restrictions matter how much a country capitalizes on GVCs, but also where in
the supply chain they are active.</span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">As it turns out, they are precisely active where
services come in. But that’s for a second blog post later on. </span></div>
</div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-7875837376236835262018-09-04T07:35:00.000-07:002018-09-07T01:27:20.365-07:00Inclusive Growth and Policy Reform<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-family: "georgia" , "times new roman" , serif;"><span style="background-color: white; color: #333333;">Recently, the first joint conference between the IMF, OECD and World Bank was held which discussed topics related to structural reforms.</span></span></div>
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<span style="background-color: white; color: #333333; font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="background-color: white; color: #333333; font-family: "georgia" , "times new roman" , serif;">At this conference, recent research on the linkages between product market regulations and inclusive growth were presented. </span><span style="background-color: white; font-family: "georgia" , "times new roman" , serif;"><span style="color: #333333;">The conference brought together policymakers and practitioners, international institutions, and leading academics to discuss key policy issues in the area of product market competition and regulation and growth.</span></span></div>
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<span style="background-color: white; color: #333333; font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="background-color: white; color: #333333; font-family: "georgia" , "times new roman" , serif;">One of the research papers was joint work I did with Mariana Iootty (World Bank) and Janez Kren (Leuven University). See below for slides. In there, we analyze how services regulations have had a positive impact on productivity developments in the EU. Interesting fact is that a lot of behind-the-border regulations on how firms operate, as opposed to pure entry barriers, have a particularly strong effect on productivity. </span></div>
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<iframe allowfullscreen="" frameborder="0" height="485" marginheight="0" marginwidth="0" scrolling="no" src="//www.slideshare.net/slideshow/embed_code/key/NeZ6SOCurrRqn6" style="border-width: 1px; border: 1px solid #ccc; margin-bottom: 5px; max-width: 100%;" width="595"> </iframe> <br />
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<span style="color: #333333; font-family: "georgia" , "times new roman" , serif;"><span style="background-color: white;">This is an important finding. Of course, entry barriers still matter for letting services firms enter a closed market so as to bring in more competition resulting in lower prices for those industries that use a lot of services, mainly as inputs. This ultimately translates into greater bang for the buck, which in economic terms is called stronger a productivity level and and eventually growth. </span></span></div>
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<span style="background-color: white; color: #333333; font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
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<span style="background-color: white; color: #333333; font-family: "georgia" , "times new roman" , serif;">However, as said, not only entry barriers matter. Once a company has entered the market, it still faces a hurdle of additional regulations which can actually frustrate firms to grow bigger. This growth of firms is an important supplementary force for greater productivity. Markets free from burdensome regulations allow firms to reach greater scale, that in turn forms an extra knock-on effect on productivity.</span></div>
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<span style="background-color: white; color: #333333; font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="background-color: white; color: #333333; font-family: "georgia" , "times new roman" , serif;">Many EU countries have over the years come to decrease their entry barriers, but in some cases barriers on the operations (or conduct) of the firm are still there. In other instances countries have in recent years actually increased their regulatory burdens for firms, which precisely are found in these behind-the-border barriers on operations. </span></div>
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<span style="background-color: white; color: #333333; font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
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<span style="background-color: white; color: #333333; font-family: "georgia" , "times new roman" , serif;">Time to be alert, therefore!</span></div>
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Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-21269725540018846422018-06-07T01:32:00.001-07:002018-06-07T01:44:27.189-07:00What Digital Policy Restrictions to Focus on?<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-family: "georgia" , "times new roman" , serif;">Now that the DTRI is out, I have received the same question various
times from different policy officers in the field: what digital policy
restrictions should we focus on? <o:p></o:p></span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">The DTRI covers a wide spectrum of policy categories ranging
from tariffs in ICT goods to regulations in services and investment to
cross-border data flows restrictions. The obvious answer to a trade economist
like me would therefore be: well it depends. That’s a cliché, but since
economics is about scarcity, decisions need to be made about trade-offs.<o:p></o:p></span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Personally, I am more interested in the future of trade,
namely (digital) services, data and ideas and other intangibles. I think that’s
where world trade is heading to and where new large productivity gains will have
to come from. That’s not to disregard trade in ICT goods or e-commerce. Precisely
if a choice needs to be made, I would argue for these flows to focus on in
future policy negotiations. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Now, to focus which policies then: the OECD recently
released an <span class="MsoHyperlink"><a href="https://www.oecd-ilibrary.org/trade/multinational-production-and-trade-in-services_16ec6b55-en">interesting
report</a></span> in which services trade by modes of supply are estimated. </span><br />
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span>
<span style="font-family: "georgia" , "times new roman" , serif;">This is a huge step since before we only had a rough idea whether services
trade took place through foreign affiliates after FDI was established (i.e.
Mode 3), or through the internet (i.e. cross-border called Mode 1). The figure
below shows both items in the form of a ratio: Mode 3 <b>over</b>
Mode 1 in two points in time, namely 2000 (white dots) and 2014 (blue bars). <o:p></o:p></span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;">The figure tells me that the higher the blue bar,
the more trade through establishments were important in 2010. When the blue bar
falls below the white dot, trade over the internet has become more important
over the years to 2014 – and vice versa. </span></span></div>
<div style="text-align: justify;">
<span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
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<a href="https://3.bp.blogspot.com/-UHp06MLJ0Lk/WxjslhiNhWI/AAAAAAAAAps/G139x0TvTBM-fjl7CKBkFrxjze-9G35SwCLcBGAs/s1600/Mode31.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="269" data-original-width="627" src="https://3.bp.blogspot.com/-UHp06MLJ0Lk/WxjslhiNhWI/AAAAAAAAAps/G139x0TvTBM-fjl7CKBkFrxjze-9G35SwCLcBGAs/s1600/Mode31.png" /></a></div>
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<span style="font-family: "georgia" , "times new roman" , serif;">Source: Andrenelli et al. (2018), page 21; Analytical AMNE database Note: Exports of
foreign affiliates have been removed from cross-border exports.</span><o:p></o:p></div>
<div style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">When looking at this figure, some
extremely interesting conclusions become visible. One, for some services such as
Distribution, Publishing activities, Computer and information services, and
Financial and Insurance services, and possibly for Professional and Scientific
services, this ratio decreased over time. </span><br />
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span>
<span style="font-family: "georgia" , "times new roman" , serif;">This means that the internet as a
vehicle for trade in these sectors has become more important. In other words, more trade of these
sectors has been traded over the internet rather than through foreign
establishments. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Other sectors such as Construction,
Postal services, Warehousing and Transport support, Administrative services or
even Telecom, trade through a foreign establishment has become more important
over time as the blue bar falls above the white dots (though Telecom
already had a high internet-trade ratio). <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">This pattern is very relevant to
decide to focus on in terms of policy in services. The services sectors that
have seen an increase of internet-based trade are also the ones that Ferracane
et al. (2018) have assessed as very data-intensive. These are sectors that use a
lot of software and data. These are also the sectors that are mostly affected
by data-related policies such as data localization. <o:p></o:p></span></div>
<div style="text-align: justify;">
<span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><span style="line-height: 107%;"><br /></span></span></span></div>
<div style="text-align: justify;">
<span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;">
<span style="line-height: 107%;">That’s visible in the figure below. The sectors
which are colored in green are the ones which are most data-intensive; the sectors in red are least data-intensive. If a
country has comparative advantage in data-intensive sectors, the policy restrictions
covered by Cluster C in the DTRI are most relevant: data localization, data
retention, intermediate liability and policies related to content access. </span></span></span></div>
<div style="text-align: justify;">
<span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><span style="line-height: 107%;"><br /></span></span></span></div>
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<a href="https://2.bp.blogspot.com/-4X-inXSl6Xc/Wxjs2cKFbtI/AAAAAAAAAp0/ao4ejRawxRMJUBkXihLYJVzGVTRWh_x1QCLcBGAs/s1600/Tradeoff_data_cluster.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="239" data-original-width="627" src="https://2.bp.blogspot.com/-4X-inXSl6Xc/Wxjs2cKFbtI/AAAAAAAAAp0/ao4ejRawxRMJUBkXihLYJVzGVTRWh_x1QCLcBGAs/s1600/Tradeoff_data_cluster.png" /></a></div>
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<span style="font-family: "georgia" , "times new roman" , serif;">Source: Author; Note: Data & Software intensities based on US Census data.</span><span style="font-size: x-small;"><o:p></o:p></span></div>
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<span style="font-size: x-small;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Conversely, if your country has
comparative advantage in say Postal services, Transport, Health or
Construction, then it makes sense for policy makers to focus on policies
covered under Cluster B of Establishment restrictions. </span><br />
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span>
<span style="font-family: "georgia" , "times new roman" , serif;">Sure, some trade in
these sectors are still traded over the internet, but since </span><span class="MsoHyperlink" style="font-family: "georgia" , "times new roman" , serif;"><a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/twec.12083">complementarities</a></span><span style="font-family: "georgia" , "times new roman" , serif;">
exists between the two Modes of trade, prioritizing establishment restrictions
will nonetheless have a knock-on effect on trade in these services over the
internet.</span></div>
<br />
<span style="line-height: 107%;"></span>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Ultimately, therefore, choices on
what policy to focus on will have to be based on your country’s comparative
advantage: where is your country good at in exporting – and <i style="mso-bidi-font-style: normal;">how</i> it is traded. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Ferracane, M., J. Kren and E. van
der Marel (2018) “Do Data Policy Restrictions Impact the Productivity
Performance of Firms?”, DTE ECIPE Working Paper Series No. 1, ECIPE, Brussels, <i style="mso-bidi-font-style: normal;">forthcoming</i>. </span><o:p></o:p></div>
<span style="font-family: "georgia" , "times new roman" , serif;"><span style="line-height: 107%;"></span></span></div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-2036474682090337512018-05-03T03:45:00.000-07:002019-10-03T03:50:12.032-07:00Who is going to win the race for AI: China or US?<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB">Who will win
the race in Artificial Intelligence (AI)? Recent </span><a href="https://www.ft.com/content/e33a6994-447e-11e8-93cf-67ac3a6482fd"><span lang="EN-GB">articles</span></a><span lang="EN-GB"> have focused on this big battle between China
and the US. Arguments appear in favour of both countries. China has huge
amounts of data and a more relaxed framework regarding </span><a href="https://www.project-syndicate.org/commentary/china-artificial-intelligence-research-development-by-marion-laboure-1-et-al-2018-04"><span lang="EN-GB">privacy</span></a><span lang="EN-GB">, whereas the US attracts a vast amount of
talent to develop software computing and has the good climate to let digital
firms with new ideas flourish. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">Frankly, I
think this issue is slightly more nuanced. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">Arguments
on both sides in favor of a strong AI based does not year, however, make clear
who of the two will profit best from long-run economic benefits using AI. For
instance, it is often pointed out that China has more data than the US and
therefore would win the race. To me, it seems that both countries own large
amount of data. And due to strong network effects, the fact of having large
sets of data just simply points out that the focus is on these two countries,
and not for instance on the EU. Hence, both can win. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB">The question
who will reap greater long-run benefits from AI is a bit more complicated to
answer. Who of the two will have sustainable specialization patterns in AI depends
on what economists call comparative advantage. China may be big and therefore </span><a href="https://www.technologyreview.com/s/609038/chinas-ai-awakening/"><span lang="EN-GB">have large network effects in AI</span></a><span lang="EN-GB">, but that does not yet mean
comparative advantage. For that to determine, one needs to have a look at what
sectors are most amenable to AI. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;">The figure below sets out the most AI-intensive
sectors based on current usage of data and software out of a much wider range
of industry and services sectors. The figure reveals some interesting insights.
For instance, it shows that mainly services appear to be most open to AI such
as internet and software services, finance and insurance, computer systems, and
logistics. But a couple of manufacturing sectors are also stands out such as
chemicals, motor vehicles, computer and electronics and electrical equipment. </span></span></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-TGxJ0n_oPIg/Wurmk6HjNyI/AAAAAAAAApA/sX4Y_lbSJ8YHUN9xsTo2PI52wOgqscDHgCLcBGAs/s1600/Data-intensities_3.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="755" data-original-width="1039" height="464" src="https://1.bp.blogspot.com/-TGxJ0n_oPIg/Wurmk6HjNyI/AAAAAAAAApA/sX4Y_lbSJ8YHUN9xsTo2PI52wOgqscDHgCLcBGAs/s640/Data-intensities_3.png" width="640" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "georgia" , "times new roman" , serif; font-size: x-small;">Source:
author’s calculations; US Census; US BLS.</span><span style="font-family: "calibri" , sans-serif; font-size: 11pt;"> </span></div>
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "calibri" , sans-serif; font-size: 11pt;"></span></div>
<a name='more'></a><br />
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB">Incidentally,
these are exactly some of the services and industry sectors that a recent </span><a href="https://www.bcg.com/en-be/publications/2017/strategy-technology-digital-is-your-business-ready-artificial-intelligence.aspx"><span lang="EN-GB">BCG study</span></a><span lang="EN-GB"> has outlined as promising sectors
regarding the effect of AI adoption on offerings and processes between now and
five years. In their study, large gains from AI are expected to come from logistics,
transport, IT services, telecom, utilities, chemicals and financial services,
as well as the automotive sector. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">These
sectors are traditionally complex and skill-intensive sectors, and also employ
a large amount of capital which are factors that traditionally advanced
countries such as the US have an abundance of. Does that mean that the US is therefore
in a better position to develop comparative advantage in AI? Not necessarily.
One factor that seems of particular importance whether a country will develop
itself into an AI powerhouse is development of the most advanced algorithms,
which will likely be used in all these AI-intensive sectors. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">Algorithms
are developed by software engineers who have enjoyed strong educational
programs based on mathematics and science. This will probably be one of the
most important factor that is going to determine whether a country can absorb
its software skills into sectors susceptible to AI – and therefore develop
comparative advantage. Countries with a strong base in mathematics and science
education are likely to create long-lasting productivity benefits of producing
and exporting sectors that use a high amount of AI. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="separator" style="clear: both; text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;">A quick look at the WEF ranking on the strength
of countries’ quality of math and science education reveals an equally
interesting pattern. Countries such as Singapore, Finland and Switzerland have
a strongest base regarding math education. Other European countries are
Netherlands, Belgium and Estonia. The US is number 10 in line, whereas
China comes at number 50 in the entire ranking of almost 200 countries.
Unexpected countries with good quality of math are Lebanon and Qatar. </span></span></div>
<div class="separator" style="clear: both; text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-k-bpfS-5VaA/WurnA3_kWeI/AAAAAAAAApI/fMsVPu5Xthwvckc5vKIp5K0G_kJP_FV5QCLcBGAs/s1600/IA_environment.tif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="755" data-original-width="1039" height="290" src="https://3.bp.blogspot.com/-k-bpfS-5VaA/WurnA3_kWeI/AAAAAAAAApI/fMsVPu5Xthwvckc5vKIp5K0G_kJP_FV5QCLcBGAs/s400/IA_environment.tif" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"></span></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif; font-size: x-small;">Source: WEF.</span></span></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<span lang="EN-GB"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB">Whoever
wins the battle of AI, the country which develops a strong university system for
software developers with qualitatively good digital skills in math and sciences
will probably benefit most from AI. Moreover, Oren Etzioni, CEO of the Allen
Institute for Artificial Intelligence notes that “</span><a href="https://www.technologyreview.com/s/610379/heres-how-the-us-needs-to-prepare-for-the-age-of-artificial-intelligence/"><span lang="EN-GB">all core AI breakthroughs have their
origins in academia</span></a><span lang="EN-GB">”.
<o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">For now, it
seems that the US is in a good position, but China is catching up fast. That
means that in a few years’ time, China could potentially equally share huge
economic benefits from specializing in AI-intensive sectors and develop comparative
advantage. On the other hand, the US has a long tradition in developing and
generating strong expertise in precisely some of the AI-intensive sectors. Combining
that with some of the strongest universities that attracts the world’s best
talent, it’s also in a good position. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB">Yet,
policies matter too, and that might be a second determining factor who gains
from comparative advantage in AI – and perhaps even the single most important
factor. China has often been claimed of having less strict privacy rules on
data which would allow the country to exploit and experiment in AI. Yet although
that may be true, ECIPE’s new </span><a href="http://ecipe.org/dte/dte-report/"><span lang="EN-GB">Digital Trade Restrictiveness Index</span></a><span lang="EN-GB"> (DTRI) also shows China is vastly
more restrictive on many other data policies, also when it comes to the cross-border
flow and domestic usage of data. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><span style="text-align: left;">That said,
the US also wants to restrict policies regarding attracting foreign talent,
which will also have an impact on digital talent flowing into universities or Silicon
Valley and will further impede profiting from prospective AI benefits. Taken
together, winning the AI race cannot be answered in a clear-cut manner. Point
is that both can benefit from AI by introducing the right enabling and policy
framework.</span> </span><o:p></o:p></span></div>
<div class="separator" style="clear: both; text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="separator" style="clear: both; text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
</div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-83979757292619687322018-04-11T03:42:00.001-07:002018-05-03T03:36:43.079-07:00Is your country boosting digital services exports?<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">A couple of
weeks ago, together with my colleague Philipp Lamprecht, I presented a webinar
on digital services trade. Digital services are the fastest growing component
of all types of trade flows since 1995. The gap of growth between exports in digital
services and in goods or traditional services has become bigger and
bigger over the years.</span></div>
<div class="MsoNormal">
<div style="text-align: justify;">
<span lang="EN-GB" style="font-family: "georgia" , "times new roman" , serif; mso-ansi-language: EN-GB;"><br /></span></div>
</div>
<div class="MsoNormal">
<div style="text-align: justify;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;">What
explains this observation? Well, some countries are just good at exporting digital
services over the internet because of their friendly policies and good digital
network environment. If you want to know who is good at exporting digital
services, who is under-performing its potential, and why, then watch
and listen to this webinar. </span><o:p></o:p></span></div>
<div style="text-align: justify;">
<br /></div>
<div class="MsoNormal">
<div style="text-align: justify;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="separator" style="clear: both; text-align: center;">
<iframe allowfullscreen="" class="YOUTUBE-iframe-video" data-thumbnail-src="https://i.ytimg.com/vi/t7tIp42tQ_g/0.jpg" frameborder="0" height="266" src="https://www.youtube.com/embed/t7tIp42tQ_g?feature=player_embedded" width="320"></iframe></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
</div>
</div>
<br />
<div class="MsoNormal">
<div style="text-align: justify;">
<span lang="EN-GB" style="font-family: "georgia" , "times new roman" , serif; mso-ansi-language: EN-GB;">For instance, some countries, such as France and Germany, are laying behind their potential to export digital services while others, such as Romania and Ireland are leading in some digital services. Of course, some countries are naturally placed to export services. Yet some of them are precisely still under-performing in digital services relative to their potential</span><span style="font-family: "georgia" , "times new roman" , serif;">.</span></div>
</div>
<div class="MsoNormal">
<div style="text-align: justify;">
<span lang="EN-GB" style="font-family: "georgia" , "times new roman" , serif; mso-ansi-language: EN-GB;"><br /></span></div>
</div>
<div class="MsoNormal">
<div style="text-align: justify;">
<span lang="EN-GB" style="font-family: "georgia" , "times new roman" , serif; mso-ansi-language: EN-GB;">The webinar explains all these issues. The webinar follows our work on digital services export that we did for the Bertelsmann Foundation. My co-authors were Philipp Lamprecht, Hanna Deringer and Fredrik Erixon. We plan to make a follow-up study to see more clearly what exactly drives this pattern.<o:p></o:p></span></div>
</div>
<div class="MsoNormal">
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
</div>
<div style="text-align: justify;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"></span><br /></div>
<div class="MsoNormal">
<div style="text-align: justify;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;">Enjoy watching!</span></span></div>
</div>
<br /></div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-51811388065937947382018-03-22T03:15:00.002-07:002018-03-24T14:18:19.348-07:00Economic Impact of LCRs in BRICS at the WTO<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Last week, ECIPE was invited </span><span style="font-family: "georgia" , "times new roman" , serif;">at the WTO </span><span style="font-family: "georgia" , "times new roman" , serif;">to speak on our work on local content requirements in BRICS countries. It was a great pleasure to be there, and the discussion I had with the WTO secretariat was a most interesting. See below for the slides.</span></div>
<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="485" marginheight="0" marginwidth="0" scrolling="no" src="//www.slideshare.net/slideshow/embed_code/key/jCpUVH8Xa0rQWJ" style="border-width: 1px; border: 1px solid #ccc; margin-bottom: 5px; max-width: 100%;" width="595"> </iframe> <br />
<div style="margin-bottom: 5px;">
<br />
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Of note, this study takes a broader definition of LCRs into account in the sense that they can relate to public procurement, investments, business operations or market access. Yet in all cases they have a clear requirement for local content classifying them as an LCR. </span><br />
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span>
<span style="font-family: "georgia" , "times new roman" , serif;">Happy read!</span></div>
</div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-13842877329954035882018-02-28T01:50:00.000-08:002018-03-04T10:49:24.036-08:00Supply chain complexity, ICT and trade<div class="MsoNormal" style="text-align: justify;">
<div class="MsoNormal">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB">A recent
McKinsey </span><a href="https://www.mckinsey.com/~/media/McKinsey/Industries/High%20Tech/Our%20Insights/Digital%20America%20A%20tale%20of%20the%20haves%20and%20have%20mores/Digital%20America%20Full%20Report%20December%202015.ashx"><span lang="EN-GB">report</span></a></span><span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"> notes that the intensity with which firms
employ Information and Communication Technologies (ICT) depends on four factors:
(1) size of the firm; (2) supply chain complexity; (3) skill levels inside the
firm; and finally (4) threat of competition. </span><o:p></o:p></span></div>
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span>
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;">Deployment
of ICT facilitates reaches higher productivity levels inside the firm. The four
determinants therefore seem reasonable as the firm-level literature shows that generally
these four points are indeed factors that are strongly associated with greater
firm performance. However, in my view, the second factor of supply chain
complexity merits some elaboration and refinement, especially with regards to
international trade. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB" style="mso-ansi-language: EN-GB;">It seems
intuitive at first sight to think that ICT tools and instruments smoothen the
supply chain network. And so, the more complex this network becomes the more
this chain uses ICT to solve complex </span><a href="https://scholar.harvard.edu/files/antras/files/global_value_chain_slides_0.pdf"><span lang="EN-GB" style="mso-ansi-language: EN-GB;">hold-up</span></a><span lang="EN-GB" style="mso-ansi-language: EN-GB;"> problems related to trade. This is because ICT
allows for geographically dispersed production and management activities.
However, the data tells something different: some supply chain trade, which
requires greater ICT, may actually be related to lower supply chain
complexity.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">This can be seen by a measure that computes the “length” of
the value chain by accounting for the number of production stages (Fally, 2012).
The more stages of production involved, the lengthier the chain becomes, the
more complex one can assume the supply chain is. The figure below plots the
average of this indicator of supply chain complexity across a like-minded set
of OECD economies for each sector on the vertical axis. The horizontal axis
plots the ICT-intensity indicator from van der Marel et al (2016) to see for
any meaningful pattern. <o:p></o:p></span></div>
<span style="font-family: "georgia" , "times new roman" , serif;"></span><br />
<div style="text-align: justify;">
<br /></div>
<span style="font-family: "georgia" , "times new roman" , serif;">
</span>
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "georgia" , "times new roman" , serif;"><a href="https://1.bp.blogspot.com/-9QaNb9EA9Lc/WpZ-YcDf4lI/AAAAAAAAAn8/FgCCCcNNq4wXKUpJQ3qwNJ-xVYxjNfeawCEwYBhgL/s1600/Complexity%2Band%2BICT-intensity.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="367" data-original-width="501" height="292" src="https://1.bp.blogspot.com/-9QaNb9EA9Lc/WpZ-YcDf4lI/AAAAAAAAAn8/FgCCCcNNq4wXKUpJQ3qwNJ-xVYxjNfeawCEwYBhgL/s400/Complexity%2Band%2BICT-intensity.png" width="400" /></a></span></div>
<span style="font-family: "georgia" , "times new roman" , serif;">
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<span style="text-align: justify;"><span style="font-size: x-small;">Source:
US BEA; OECD TiVA. Sector numbers follow ISIC Rev 3.</span></span></div>
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<span style="text-align: justify;"><span style="font-size: x-small;"></span></span></div>
<a name='more'></a></span><br />
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<span lang="EN-GB" style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="font-family: "georgia" , "times new roman" , serif;">Interestingly,
no positive relationship between supply chain complexity and ICT-intensity is
observable, but a negative one! In large part, this is explained by the
services sector. Services supply chains are known to be relatively </span><a href="http://www.oecd-ilibrary.org/docserver/download/5k3v1trgnbr4-en.pdf?expires=1517154072&id=id&accname=guest&checksum=33CFA309DC1A869C22C2A99FEE0DE885" style="font-family: Georgia, "Times New Roman", serif;"><span lang="EN-GB">shorter</span></a><span lang="EN-GB" style="font-family: "georgia" , "times new roman" , serif;">. </span></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="font-family: "georgia" , "times new roman" , serif;">However, services supply chains also show
greater levels of ICT usage as the dashed fitted values line shows (which is
actually a two-way fractional-polynomial to show some subtleness in this
relationship). Moreover, even across manufacturing supply chains little
positive correlation can be observed in the upper left corner of the graph. In
that corner of the graph, the fitted values line is upward sloping, but only
because the agricultural sector is included. </span></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB" style="mso-ansi-language: EN-GB;">So, what
then can improve explaining the increased usage and employment of ICT in the
supply chain if not complexity, i.e. if not the second McKinsey point. Surely,
ICT is being intensively used more in one part of the supply chain than in
other parts. Indeed, some stages of the supply chain do use more ICT than other
stages. This can be seen in the following figure below which plots </span>again
the same ICT-intensity indicator on the horizontal axis but now using different
supply chain indictor on the vertical axis, namely “upstreamness” from Antràs
et al. (<a href="https://e71699f4-a-62cb3a1a-s-sites.googlegroups.com/site/davinchor/AntrasChorFallyHillberry%20AER%20PP%202012%20Final%20Version.pdf?attachauth=ANoY7cqU7uJhXxevs3N-ThIbjHqq7hGqL0QwQLv0SiHJKqufldRBXsnzDbY9RmCWByMiBgIUUCTpW9nJxGz4CESX6Q01CeiFLty9qYAlXCqjBUWNdW8PiJAR7LmYgGk9JY4JOh_FxRZXmcq1LifKUDKgjCqnG-UsJe2r6DxF0HDBekztmd90ffPzMQ95mldN62UsMTk8FKslFOc-vva-NMJGnQIC_MWLc6KcOEtdG2JwjrUArNEk48CyQlKl_h9xtgMk-3GXNI0e&attredirects=1">2012</a>;
<a href="http://www.nber.org/papers/w24185">2018</a>). <o:p></o:p></span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Upstreamness means nothing else then “distance to final
demand”. It indicates that when the level of upstreamness is higher the more a country
or industry is specializing in the production of inputs at the beginning of the
value chain. As such it can be expressed by country or industry. Lower upstreamness
means that an industry is more downstream: it specializes relatively at the end
of the value chain. The figure below sets out this measure on the vertical axis
and shows that actually many services are very downstream, meaning that
services supply chains are very close to final demand. <o:p></o:p></span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
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<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
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<a href="https://1.bp.blogspot.com/-n9BrlfqbS7Y/WpZ-Yy-gTHI/AAAAAAAAAoA/vrkJ4lQ1ScoMDIA9SYUeIrbGdDjJsp-PwCEwYBhgL/s1600/Upstreamness%2Band%2BICT-intensity.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="367" data-original-width="501" height="291" src="https://1.bp.blogspot.com/-n9BrlfqbS7Y/WpZ-Yy-gTHI/AAAAAAAAAoA/vrkJ4lQ1ScoMDIA9SYUeIrbGdDjJsp-PwCEwYBhgL/s400/Upstreamness%2Band%2BICT-intensity.png" width="400" /></a></div>
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<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><span style="font-size: x-small;">Source: US
BEA; Antràs et al. (2012). Finance and telecom are omitted because of being
huge outliers. Sector numbers follow ISIC Rev 3.</span><o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">What’s
more, the figure also shows that ICT-intensity relates much better with the
supply chain position of an industry. Put differently, the extent to which
industries are using ICT does not so much depend on the level of supply chain complexity,
but is rather related to the extent to which industries are specializing
upstream or downstream in the supply chain. Again, in great part this is
related to services since more services are placed closer to the final consumer
and at the same time are also more ICT-intense. </span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">That does not mean, however,
that ICT tools may be more economically valuable for <a href="http://www.solvay.edu/newsletter/docs/evelyne_done_nz_right">upstream
suppliers</a>, even though an industry or firm can be positioned relatively more
downstream across the entire range of the supply chain. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">In all,
complexity may not be exactly the right predictor for why firms use ICT in the supply
chain and successfully export their goods and services, but rather their
“place” of specialization in the supply chain. What that means for policy is
for a next blog post.</span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">References:<o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">Antràs, P.,
T. Fally and R. Hillberry (2012) “Measuring the Upstreamness of Production and
Trade Flows". American Economic Review Papers and Proceedings, Vo. 102,
No. 3, pages 412-416. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">Antràs, P.
and D. Chor (2018) “On the Measurement of Upstreamness and Downstreamness in
Global Value Chains” NBER Working Paper No. 24185, National Bureau of Economic
Research, Cambridge MA.<o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">Fally
(2012) “Production Staging: Measurement and Facts”, University of
Colorado-Boulder.<o:p></o:p></span></span></div>
<div class="MsoNormal">
</div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">van der
Marel, E., H. Lee-Makiyama, M. Bauer and B. Verschelde (2016) "A
Methodology to Estimate the Costs of Data Regulation", International
Economics, Vol. 146, Issue 2, pages 12-39.</span><o:p></o:p></span></div>
<br />Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com2tag:blogger.com,1999:blog-511418575454177527.post-31962019045426779592018-02-15T06:21:00.001-08:002018-02-15T06:21:22.079-08:00FDI Screening: Implications for the Future<span lang="EN-GB" style="font-family: georgia, "times new roman", serif; text-align: justify;">Two weeks
ago, I spoke at an event where I commented on a very interesting paper from
Copenhagen Economics (CE). The paper assesses the economics of EU Foreign
Direct Investments (FDI) and the need to undertake screening in the EU. Economists
are generally weary of setting up screening measures for foreign investments as
it increases </span><a href="http://www.oecd.org/investment/fdiindex.htm" style="font-family: georgia, "times new roman", serif; text-align: justify;"><span lang="EN-GB" style="mso-ansi-language: EN-GB;">substantial costs</span></a><span lang="EN-GB" style="font-family: georgia, "times new roman", serif; text-align: justify;"> for little economic reason.</span><br />
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;">Therefore,
the recent proposal of the EC to introduce screening measures has more to do
with political economy, wider geopolitical or even security reasons. For
instance, one of the biggest concerns is that some of the recent FDI coming into
the EU is from various emerging economies such as China, Kazakhstan and Russia,
which still have many State-Owned Enterprises (SOEs) in their economies.<o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;">This
according to economists is a problem, but a simple back-of-the-envelope
calculation tells me that the share of this FDI in some sensitive sectors
flowing from these countries with much SEOs involved is at most 3.5 percent of
EU’s total incoming FDI. Hence, a first question appears: does that warrant an
overall screening measure? Some trade-offs are involved as obviously economics doesn’t
stand on its own here. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;">However, my
intervention was about the future of foreign investments. In particular, the
changing nature of investments the EU has received in recent years, namely
investments in digital sectors. This should force policy makers to think about
when proposing investment regulations, including screening. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB" style="mso-ansi-language: EN-GB;">First,
although it is right to state that FDI brings along a great “footprint” as
economist say, this is in fact much lower for digital investments. With
“footprint” we mean economic activity such as employment, value-added and
greater output. Footprints for tangible investments such as manufacturing are known
to be high, but the recent </span><a href="http://unctad.org/en/PublicationsLibrary/wir2017_en.pdf"><span lang="EN-GB" style="mso-ansi-language: EN-GB;">UNCTAD</span></a><span lang="EN-GB" style="mso-ansi-language: EN-GB;"> (2017) report shows that this footprint from
multinational digital companies is actually much lower. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;">This can be
seen in the figure below that measures this footprint by taking the ratio from
foreign sales over foreign assets. For manufacturing and telecoms this ratio is
actually 1:1 (in case of telecoms the assets are high because of infrastructure
investments). Yet for FDI coming from digital multinationals, foreign assets
are typically lower leading to a much higher ratio (because of higher sales),
which means a lower footprint.<o:p></o:p></span></span><br />
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span>
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<a href="https://1.bp.blogspot.com/-dcA0NU-ctwM/WoWV8NFsrvI/AAAAAAAAAmk/GkE6V1_0WUk00oz3WrCXNQuxFctT7giQwCEwYBhgL/s1600/Lower%2Bfootprint%2BDigital%2BFDI.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="339" data-original-width="932" height="232" src="https://1.bp.blogspot.com/-dcA0NU-ctwM/WoWV8NFsrvI/AAAAAAAAAmk/GkE6V1_0WUk00oz3WrCXNQuxFctT7giQwCEwYBhgL/s640/Lower%2Bfootprint%2BDigital%2BFDI.jpg" width="640" /></a></div>
<div class="MsoNormal" style="text-align: center;">
<span lang="EN-GB" style="mso-ansi-language: EN-GB;"><span style="font-family: "georgia" , "times new roman" , serif; font-size: x-small;">Source: UNCTAD WIR (2017)</span></span></div>
<div class="MsoNormal" style="text-align: justify;">
</div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB"></span></span><br />
<a name='more'></a><br />
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB">Second,
intangible capital such as investment from digital companies are extremely
mobile. A nice example of this intangible capital is given in a book by </span><a href="https://press.princeton.edu/titles/11086.html"><span lang="EN-GB">Haskel and Westlake</span></a><span lang="EN-GB"> (2017). They state that a company like
Starbucks does invest, but not as grounded as for instance a multinational car
company does in machines. The goodwill, management and coordination in which
Starbucks needs to invest can be pulled out a country relatively easily.
Intangible investments are much greater in digital sectors. <o:p></o:p></span></span></div>
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<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">Third,
spillovers from digital investments are much greater. This phenomenon can
translate itself into positive wider productivity effects for the sector or
country at large. But, there is a twist to this story: as spillover effects are
greater and often digital (i.e. quick and non-physical), they may also lead to
fast “idea-stealing” by competitors, leading companies to ardently reduce
competition with much less productivity effects taking place due to lower
spillovers. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">All this
leads me to think that if any policy maker wants to propose new investments
regulations in what kind of form whatsoever, the policy maker should think
about these changing features of FDI. The more so as sensitive sector in which
some investment policies appear to be needed are in fact extremely
digital-intensive, such as finance, utilities, computer technology and air
transport. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">
<span lang="EN-GB" style="line-height: 107%;">I suspect that most if not all of these sectors will
show similar signs of these new features of digital investments – if not now,
then probably tomorrow. </span></span></span></div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com1tag:blogger.com,1999:blog-511418575454177527.post-54741098171098289082018-01-25T09:26:00.002-08:002018-01-25T09:46:22.546-08:00LCRs versus tariffs: The see-saw of trade barriers?<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">You may have not noticed it, but the use of local content
requirements (LCRs) has <a href="http://www.globaltradealert.org/global_dynamics">gone up</a> for years. They
are used by developed as well as developing countries. LCRs aim to promote the
use of local inputs. They also serve the purpose of fostering domestic
industries. BRICS and many other emerging countries are frequent users of LCRs,
together with the US.</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">However, LCRs can be highly damaging for the economy. While
LCRs might have the perceived benefit of creating industry activity and local
employment, these gains or often generated in the short-term. LCRs are most
likely to have a damaging economic impact that is wider in the long run. This
harmful impact therefore evolves over time, which eventually outweighs any
specific short run gain they can create. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">ECIPE’s <a href="http://ecipe.org/publications/the-economic-impact-of-local-content-requirements/?mc_cid=35a4a139fa&mc_eid=587eab2bf6">new
study</a> with undersigned contribution estimates the damaging impacts of
LCRs for BRICS countries. Our team has translated their negative effects into
so-called ad valorem equivalents (AVE). This is a methodological concept that allows one to readily
compare the adverse impact of any non-tariff barrier (NTB) such as an LCR with
a tariff. Our study has taken LCRs in the heavy vehicle sector as a case in
point. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">The results are presented in the figure below. They show
that Brazil and Russia apply the most distortive LCRs for heavy vehicles. The
two countries have an estimated increase of their import price of 15.6 and 11.1
percent respectively. China and South Africa both show low AVEs of 4.5 and 3.3
percent respectively. India’s LCRs are least harmful as it shows an AVE estimate
of 2.2 percent.</span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;"> </span><a href="https://2.bp.blogspot.com/-0yNcJDc65XU/WmoSwd3HwhI/AAAAAAAAAl8/kU6UIvCqPcgDPHE-U4kxckWQgrC9UbiIQCLcBGAs/s1600/LCRs%2BBRICS%2B2.png" imageanchor="1" style="clear: left; display: inline !important; margin-bottom: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="346" data-original-width="535" src="https://2.bp.blogspot.com/-0yNcJDc65XU/WmoSwd3HwhI/AAAAAAAAAl8/kU6UIvCqPcgDPHE-U4kxckWQgrC9UbiIQCLcBGAs/s1600/LCRs%2BBRICS%2B2.png" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span style="font-size: x-small;">Source: ECIPE calculations, based on ECIPE LCR BRICS database; WITS/UNCTAD TRAINS</span></span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"></span></div>
<a name='more'></a><br />
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Strikingly, there is more to this story. The figure also
shows the opposing relationship between LCRs and tariffs: apart from Brazil,
countries with low tariffs in the heavy vehicles sector actually have higher levels of
distorting LCRs. Conversely, countries with higher tariffs have lower levels of
distorting LCRs. Brazil is an outlier in these sense that it has both high
tariffs and high levels of distorting LCRs.</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">When you come to think of it, this may not be a big surprise. Over the
years tariffs have gone down through unilateral, multilateral or bilateral
deals governments have sealed. But this trend has unlikely satisfied everyone
in the economy. One way for government to compensate actors, constituencies or
firms active in import competing industries is by raising murky NTBs, of
which LCRs are one of them. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">We furthermore estimate the wider economic impact that LCRs have
inside as well as outside this sub-sector of motor vehicles. The results indeed
show that although LCRs may have a short-term effect of increasing output in
the targeted sector, for the rest of the economy, including consumes, a much
bigger negative effect takes place. This is important to note as everyone else
suffers from LCRs. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">For instance, the identified LCRs are estimated to restrict
imports of heavy vehicles by -21% in Brazil and -12% in Russia because of their increased import prices (for the other BRICS countries this varies between -9.3%
and -3.7%). LCRs therefore benefits the domestic heavy vehicle industry in
these countries by shielding inefficient firms in the sector from any external
competition. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal">
</div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">However, the consequence is that the LCRs in the BRICS countries will in turn have the pernicious
effect of (a) reducing exports of heavy vehicles themselves;
(b) increasing prices for firms who need heavy vehicles as an intermediate good; and
finally (c) decreasing production of closely related industries using
heavy-vehicles (in part because of higher prices). </span><br />
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span>
<span style="font-family: "georgia" , "times new roman" , serif;">In the end, the final user, that is the consumer, is worse off </span><o:p></o:p><span style="font-family: georgia, "times new roman", serif;">in the BRICS countries</span></div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-60017399244753535492018-01-16T01:46:00.000-08:002018-01-17T03:05:40.223-08:00Are services really not helping the economy?<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">Bullocks!
That is the conclusion that came to me when I participated in the roundtable
conference on services and economic development in Tokyo last month. This
conference was organized by the Asian Development Bank Institute (ADBI) and
discussed with experts the positive role of services in the world economy.<o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB">It’s high
time for this discussion. In recent years there has been a slight backlash
against services as a contributing factor to the economy, particularly for
developing countries. One reason for this set-back against services stems from a
</span><a href="https://link.springer.com/article/10.1007/s10887-015-9122-3"><span lang="EN-GB">recent article</span></a><span lang="EN-GB"> by Dani Rodrik in which he drives
the point that many developing countries are de-industrializing faster than
before and therefore moving into services too quickly. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">This
premature de-industrialization, he argues, prevents them from using the
manufacturing sector as a tool for rapid economic growth. According to Rodrik,
in large part this is due to globalization and trade itself because
globalization has produced changes in relative prices in advanced countries. This
can have serious negative consequences for developing countries’ growth
potential because, in the future, they would be much less able to capitalize on
manufacturing exports. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">There are,
however, a couple of remarks that in my view must be made here. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">First, these
conclusions are most probably based on aggregate figures between countries’
services and manufacturing activities, which in great part mask the fact that
many manufacturing sectors have already become “servicified” to a high degree.
This means that a lot of gains by manufacturing firms are earned though
services, not manufacturing. For instance, is Zara a garment manufacturer
nowadays or just a retailer? Most probably it comes close to the latter. Such servicification
is not yet picked up and properly classified in aggregate figures – and this is
true also for developing countries. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;">Second, there are surely economic meaningful
sectors in a country’s services economy. The old way to look at services is
that they don’t show a great economic role as they are not receptive to
productivity improvements. That assertion seems to be out of date. Even though
productivity for services is hard to measure, European micro-level data suggest
that productivity varies hugely across services, and therefore their contribution
to the overall economy is also varied. (see figure below). This should also be
the case for non-developed economies.</span></span></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://2.bp.blogspot.com/-BS_EItOMyQM/Wl3JGa2x4AI/AAAAAAAAAkc/Hu-WKNuAiG8isTvOEYfHxcXRR_jJhtASQCLcBGAs/s1600/Services_prod.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="367" data-original-width="501" src="https://2.bp.blogspot.com/-BS_EItOMyQM/Wl3JGa2x4AI/AAAAAAAAAkc/Hu-WKNuAiG8isTvOEYfHxcXRR_jJhtASQCLcBGAs/s1600/Services_prod.jpg" /></a></div>
<div style="text-align: center;">
<span lang="EN-GB" style="line-height: 107%;"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif; font-size: x-small;">Source:
Data taken from Van der Marel, Kren and Iootty (2015) "Services in the European Union: What Kinds of Regulatory Policies Enhance Productivity?", World Bank Policy Research Working Paper No. 7919, World Bank, Washington DC.</span></span></span></div>
<div style="text-align: justify;">
<br />
<br />
<a name='more'></a><span style="font-family: "georgia" , "times new roman" , serif;">Some
services such as telecom, financial services and business services are much
more productive than the average manufacturing sector. Over the years these
sectors have also become increasingly tradable. Other sectors are still lagging
behind, such as accommodation or security services, which are still in great
part non-traded. In short, nothing suggests that services cannot contribute to
the economy of a developed or developing country. In fact, when services become
more tradable over time, and countries are able to export them, their
contribution to the economy for all types of countries gets bigger.</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">Third,
although it is true that many manufacturing activities (i.e. stages of
production) have been outsourced to developing countries, and therefore is a
way for them to export these manufacturing activities (i.e. goods) through the
global supply chains, this does not mean that services couldn’t do the same
job. As most countries throughout the world are naturally expanding their services
economy, parts of these services activities (i.e. stages of services processes)
can in principle also be outsourced to other countries, many of which are
likely to be developing economies. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">Rodrik
asserts, however, that these services sectors are not big enough to give these countries
a real boost. This might be true at first sight, but some numbers tell another
story in my opinion. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB">For
instance, looking at European firm-level data of millions of firms across the
continent, it becomes clear that computer programming, head office services,
civil and basic engineering, postal and courier services and telecom services
together (to name just a few) are as big as four important supply chain
sectors, such as motor vehicles, metal production, machinery and equipment, and
food manufacturing. In fact, thanks to supply chain trade and outsourced activities
to developing countries these sectors have been able to grow over time. Therefore,
there remains enough services activities to be outsourced to developing
countries in the future, especially with the </span><a href="http://www.hup.harvard.edu/catalog.php?isbn=9780674660489"><span lang="EN-GB">advancement of new technologies</span></a><span lang="EN-GB">. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;">
</span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB">Now,
whether developing countries can truly capitalize on services activities,
especially the ones which are mentioned above, will depend on one important
thing, namely skills. One lucky finding is that, although generally exportable
services are skill-intense, many developing countries have been able to export
services </span><a href="http://unctad.org/meetings/es/Presentation/c1mem5_2017_112_S2_Mattoo_1.pdf"><span lang="EN-GB">with unskilled labour</span></a></span><span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">. Yet as sectors mature, many of
these services activities will become more skill-intense, particularly in
technology. In the longer term it is therefore crucial for developing countries
to improve their skill base to be able to export more of these services activities. </span><o:p></o:p></span></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-89279457142083531252018-01-12T08:23:00.000-08:002018-01-12T08:30:24.285-08:00Productivity, Manufacturing and Trade<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">A very <a href="http://www.nber.org/papers/w24151">interesting piece</a> by Robert Lawrence on manufacturing productivity and trade. Three very interesting conclusions come out: </span></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">(a) that not trade is the major contributor to a decline in the share of manufacturing employment, but faster productivity; </span></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">(b) that therefore productivity growth is in large part the factor that has contributed to losses of manufacturing jobs (together with our habit to not consume more goods but more services when we get richer); and </span></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">(c) that there seems to be a trade-off in recent times between the share of manufacturing employment and productivity growth: more of the one is less of the latter -- or reverse. </span><br />
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span>
<span style="font-family: georgia, times new roman, serif;">For economists dealing with this topic, the first two conclusions are not entirely new. In fact, this is how I have learned it from my textbook economics. The latter is new to me and very interesting. </span><br />
<span style="font-family: georgia, times new roman, serif;"><br /></span>
<span style="font-family: georgia, times new roman, serif;">The last conclusions also raises some questions. For instance, is the historical leveling off of economic growth we have seen in the past (i.e. previous wave of globalization) related to this fact? Can new technologies in other sectors such as services we currently seeing reduce this trade-off? </span><br />
<span style="font-family: georgia, times new roman, serif;"><br /></span>
<span style="font-family: georgia, times new roman, serif;">Some questions to think about. </span></div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-17806459813599028892017-12-11T05:50:00.001-08:002017-12-13T01:14:59.035-08:00Brexit and supply chain trade<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Last week I was invited to talk about supply chain trade and Brexit at Sidley
Austin in London. They asked me to focus my intervention on the how the rest of
the world, in particular the bigger countries, thinks about Brexit in connection
to supply chains. My answer was short: on the whole, not so much.</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">The simple
reason for providing this short answer is straightforward if reasoned from an
economic point of view. The figure below shows that most global supply chain
trade takes place around three blocs of countries, namely one centered around
NAFTA and neighboring countries with the US in the middle, one in Asia with China as the lead country,
and one in Europe with Germany as the focal point. The thickness of the lines between countries indicates their level of supply chain trade. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">As one can
see, countries clustered around each of these three core countries are mostly
trading within their bloc, not between them. The UK, circled in orange, clearly features inside
the EU bloc and doesn’t have as strong trade linkages across the other two non-EU
groups of countries. Therefore, from an economic perspective, when the UK leaves the EU, on
the whole, other countries outside the European bloc are likely to remain
unaffected. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB">Further
research using formal economic models underscores this line of thought. In GDP
numbers, countries such as China, Japan, Brazil or Korea may not be so much </span><a href="https://www.google.be/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&uact=8&ved=0ahUKEwiQt9mF8_fXAhVDIlAKHeuFAaMQFgg2MAI&url=http%3A%2F%2Fwww.imf.org%2Fen%2FPublications%2FWEO%2FIssues%2F2017%2F09%2F19%2F~%2Fmedia%2FFiles%2FPublications%2FWEO%2F2017%2FOctober%2Fpdf%2Fmain-chapter%2Fc1.ashx&usg=AOvVaw0bBFmV1vq2YLPdD9uFngwP"><span lang="EN-GB">affected after all</span></a><span lang="EN-GB">. That does not mean, however, that
changes in trade may take place in several supply chain industries. A
reshuffling of trade is likely to happen for some but would simply not be as
big enough of an issue to create a serious dent in their economies.</span></span><br />
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB"><br /></span></span>
<br />
<div class="separator" style="clear: both; text-align: left;">
<a href="https://2.bp.blogspot.com/-psIHlOI5DGo/Wi6RUw0xNZI/AAAAAAAAAj0/ia-8qKBuRm0zWhB0OF8HV-W37txBbio7ACLcBGAs/s1600/GVC_brexit%2B2.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="430" data-original-width="892" height="308" src="https://2.bp.blogspot.com/-psIHlOI5DGo/Wi6RUw0xNZI/AAAAAAAAAj0/ia-8qKBuRm0zWhB0OF8HV-W37txBbio7ACLcBGAs/s640/GVC_brexit%2B2.png" width="640" /></a></div>
</div>
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB" style="font-size: x-small; text-align: justify;">Source: Santoni and Taglioni (2015) with author's addition. </span></span></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB" style="text-align: justify;"><br /></span></span></div>
<div class="separator" style="clear: both; text-align: left;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB" style="text-align: justify;">However,
economics is not everything. Especially regarding Brexit. If reasoned from a
political economy point of view outsiders in the rest of the world may be a
little bit more concerned, as for example regarding </span><a href="https://www.theguardian.com/politics/2017/oct/11/uk-and-eu-formally-inform-wto-of-post-brexit-tariff-quota-plan" style="text-align: justify;"><span lang="EN-GB">food tariff quotas</span></a><span lang="EN-GB" style="text-align: justify;">. But the extent to which they are
disturbed as part of these re-negotiations is likely to be related to one
thing: market size.</span></span></div>
<div class="separator" style="clear: both; text-align: left;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span style="text-align: justify;"><br /></span></span></div>
<div class="separator" style="clear: both; text-align: left;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span style="text-align: justify;">For
instance, it’s no surprise that precisely a bigger country like the US vocally
oppose the tariff quota plan which is a harbinger for what’s coming. If bigger
countries come in the position of negotiating a new trade agreement with the
UK, the US and other countries such as China, Korea, Japan conveniently have a
lot of market weight on their side. </span></span><span style="font-family: "georgia" , "times new roman" , serif; text-align: justify;">Again, this fact hardly gives bigger counties
in the rest of the world a reason to be very much concerned.</span></div>
<div class="separator" style="clear: both; text-align: left;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span style="text-align: justify;"><br /></span></span></div>
<div class="separator" style="clear: both; text-align: left;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span style="text-align: justify;">By the way,
fun-fact of the week: when looking at the figure, can you see in which of the three
blocs Ireland is placed? Click on the figure to enlarge. </span></span></div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-77238186812217502652017-10-05T03:29:00.001-07:002017-10-05T03:29:10.553-07:00Who Underperforms in Digital Services Trade?<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">For the past 40 years or so,
developments of information and communication technology (ICT) have transformed
much of the way producers and consumers connect with each other. ICT reduces
costs of distance between producers – and between producers and consumers. This
has resulted in the fact that international trade has grown faster than before.</span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span style="font-family: Georgia, "Times New Roman", serif;"><br /></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span style="font-family: Georgia, "Times New Roman", serif;">Only a short while ago, it was
simply unimaginable to export services. Thanks to new technologies and ICT,
services have become tradable and, moreover, have hugely expanded the scope of
exports and imports. Nowadays, services represent around 23 percent of total cross-border
trade. Moreover, the figure below illustrates that trade in total services has grown
faster than trade in goods, particularly in the last 5 years.</span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: left;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: center;">
<span style="font-family: Georgia, Times New Roman, serif;">Rapid growth rates of trade in services and digital services (1995-2016)</span><a href="https://4.bp.blogspot.com/-vovIzN_kp2c/WdYIH4s04PI/AAAAAAAAAh4/IxTUoZ2d3dQ0I1hG3kf2oJSHV-olls9VwCLcBGAs/s1600/Digital%2Bservices%2Btrade%2B%2528bruxenomics%2529%2B2.jpg" imageanchor="1" style="clear: left; display: inline !important; margin-bottom: 1em; margin-right: 1em; text-align: justify;"><img border="0" data-original-height="259" data-original-width="502" src="https://4.bp.blogspot.com/-vovIzN_kp2c/WdYIH4s04PI/AAAAAAAAAh4/IxTUoZ2d3dQ0I1hG3kf2oJSHV-olls9VwCLcBGAs/s1600/Digital%2Bservices%2Btrade%2B%2528bruxenomics%2529%2B2.jpg" /></a></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: center;">
<span style="font-family: Georgia, "Times New Roman", serif; font-size: x-small;">Source: World Development Indicators</span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: left;">
<span style="font-family: Georgia, "Times New Roman", serif; text-align: justify;"><br /></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: left;">
<span style="font-family: Georgia, "Times New Roman", serif; text-align: justify;">However, the figure also shows
that ICT finds its strongest effect on </span><i style="font-family: Georgia, "Times New Roman", serif; text-align: justify;">digital</i><span style="font-family: Georgia, "Times New Roman", serif; text-align: justify;">
services trade. Indeed, a more impressive growth rate is observed for digital
services. Since 1995, this type of digital flow grew with a factor of more than
5! With the current trend of digitalization, it is very likely that these trade
patterns will not just continue but even accelerate.</span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">Ultimately, this will rapidly change
the way we perceive globalization. The digital economy is moving fast, and a large
part of future trade and growth lies in this digital area. </span></span><span style="font-family: Georgia, "Times New Roman", serif;">This development will favor the
EU as traditionally, it has been a strong exporter in services. </span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">However, not
all countries in the EU capitalize on the digital developments such as Germany
and France. This is worrying as these two countries are the two largest
economies after Brexit. In large part, Europe’s future growth based on digital
services needs to come from these two countries, which includes digital
services trade as well. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">Moreover, one should bear in mind
that digital technologies do more than enabling services to become tradable;
services themselves are also becoming more and more digital-intense. The
essence of this profound change is that any type of services is increasingly
developed with the help of digital assets and means such as big data,
internet-of-things and other ICTs. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">A new <a href="https://www.bertelsmann-stiftung.de/fileadmin/files/BSt/Publikationen/GrauePublikationen/NW_Study_Trade_in_Services_Digitalisation.pdf">Bertelsmann report</a> performed by ECIPE finds that developing
an attractive infrastructure for digital technologies to facilitate digital
services trade is not a given. On the contrary, some countries are still
lagging behind in some or many of these infrastructural “endowments” which
enables digital services trade to happen in the first place. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">The endowments specific to digital
services trade will both relate to invested capital such as telecom infrastructure,
network-access capacities and the skills among the workforce to use digital
technologies. These are the factors that will determine a country’s future
success in digital services trade and the next frontier of globalization.<o:p></o:p></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">The report compares the
performance of European and OECD countries, against their own predicted
capacity. It therefore enables us to understand if countries over or
underperform in cross-border digital services trade over the internet. One
takeaway point from this analysis is that precisely Germany and France
underperform in digital services trade.<o:p></o:p></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">The report also sheds light on the
potential for countries to trade digital services <i>indirectly</i> as an embodied item in other industries and sectors
using digital services, which extends the scope of trade in digital services
even further. Here too, France and Germany could be doing much better. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">That begs the question: why?<o:p></o:p></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></span></div>
<div class="MsoNormal" style="margin-right: -2.25pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">
<span lang="EN-GB">The conclusion of this study is that while Germany for instance has
great potential to increase digital trade in services, and along with that
output and jobs connected to digital services, that potential can only be
realized in the economy if German firms get better at utilizing existing
digital endowments and capabilities, including digital services themselves. </span></span></span></div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-17159930000763449442017-05-23T06:03:00.003-07:002017-05-23T06:03:44.954-07:00APEC meetings on digital trade<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">In this presentation that I held in Hanoi for the APEC meetings, I argue that the digital trade can be viewed not only from a trade angle, but also from a competitiveness angle which should therefore not be overlooked. </span></div>
<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">The reason is that digital policies will in my view first and foremost increase domestic productivity. Sure, less stringent data policies will also effect trade, inducing countries to reinforce their comparative advantage in digital goods and services, but the way in which we will see this development in our statistics will be through improved productivity. </span></div>
<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">Read more <a href="http://bit.ly/2qQNWpY">here</a>! </span></div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-17165035803702136982017-01-30T03:34:00.000-08:002017-01-30T04:28:32.688-08:00Data Flows & Servicification<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">Here are my <a href="https://drive.google.com/open?id=0B23HP7h2lZyoSHdYM0F6d1dYaVk">slides</a> of a talk I gave at the WTO last week. The presentations sets out how data flows are economically important for the servicification of the economy / industries, and how the regulatory environment of data flows looks like today. Have a good read! </span></div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-43793473191854303892017-01-10T08:22:00.000-08:002017-01-10T09:05:17.614-08:00Europe's Productivity Problem<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">There is a
long-standing concern about Europe’s productivity performance, a long-term
indicator for sustained economic growth. It is a measure that summarizes how
effective we use our economic resources such as labour, capital and
skills to create an efficient European economy. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">Across the developed
world, productivity is one of the most important economic catalysers because at
some point economic growth through accumulating skills, capital or labour continue
to naturally increase at a slower pace than before. From that moment onward,
and hence in the long-run, economic growth comes down the ability to use all
these factor in an efficient manner. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">The concern
with productivity is that aggregate productivity numbers describe a picture
that is rather bleak. For over a long period of time now, the level of
productivity has remained constant in the European Union (EU) as well as other
OECD countries, and does not seem to be capable of showing any significant
increase. <o:p></o:p></span></span></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;">Using micro-level data of millions of firms in
the EU, a <a href="http://pubdocs.worldbank.org/en/930531475587494592/EU-RER-3-Services-to-the-Rescue.pdf">recent
report</a> by the World Bank confirms this dim picture in the sense that there
is very little movement of productivity over time. The figure below shows
in blue the productivity developments in Europe’s manufacturing sector. After
the global financial crisis (GFC), productivity went somewhat down and
continued hovering around a constant level. </span></span></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div style="text-align: justify;">
<span lang="EN-GB" style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-HNfL29f4Tfc/WHUJrvF31YI/AAAAAAAAAd4/MbNqwN2UgOYCe0Nip6euPJvrDE4H8bf8gCLcB/s1600/Figure%2BEU%2BTFP%2Bover%2Btime.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="293" src="https://3.bp.blogspot.com/-HNfL29f4Tfc/WHUJrvF31YI/AAAAAAAAAd4/MbNqwN2UgOYCe0Nip6euPJvrDE4H8bf8gCLcB/s400/Figure%2BEU%2BTFP%2Bover%2Btime.jpg" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<a name='more'></a><br />
<div style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">The picture for productivity in services is even more
worrying as the </span><span lang="EN-GB" style="font-family: "georgia" , "times new roman" , serif;">figure shows
that the time trend for Europe’s productivity developments in this sector is even
declining. </span><br />
<span lang="EN-GB" style="font-family: "georgia" , "times new roman" , serif;"><br /></span>
<span lang="EN-GB" style="font-family: "georgia" , "times new roman" , serif;">Although admittedly productivity for services is a lot harder to
define, the gap between manufacturing and services is nonetheless increasing –
a conclusion that mirrors recent OECD work to the extent that the gap between the
most productive firms at the frontier compared to all other firms is becoming much
wider in services than for goods.</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">In that <a href="https://www.oecd.org/eco/growth/OECD-2015-The-future-of-productivity-book.pdf">OECD
report</a> called “The Future of Productivity”, the authors investigate the determinants
of the future of productivity growth across OECD economies, including the EU. Several
take-aways stand out from this work that in my view has clear policy
implications for Europe. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">One is the
importance of capital dedicated to knowledge, or what is called Knowledge Based
Capital (KBC). Investment in KBC spans R&D, know-how, firm-specific skills,
design and various forms of intellectual property as the OECD defines it. According
to the Paris-based think-tank, increasing KBC investments would likely further
enhance productivity, which across economists is well-accepted. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">But, this conclusion
would be particularly relevant in the current digital era. Therefore, any
policy that creates or inhibits the development of KBC becomes an important
item to watch, including policies related to the movement, storage and
deployment of data across borders and other digital (trade) policies on which
many business models and current know-how is built on. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><span lang="EN-GB">Other
examples of digital trade policies next to these data policies include the mandating of the use of specific technologies, </span>the adoption of certain standards <span lang="EN-GB">for digital firms, or the disclosure
of </span>proprietary<span lang="EN-GB">
information, which all amongst many others policy measures would stifle productivity
growth through lowering the effective use of digital knowledge capital. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">Second is
increasing competition through reforming product and labour market policy regulations.
The OECD report notes that the existence of many small and relatively old firms
in some European countries negatively affects aggregate productivity (and
employment growth). </span></span><br />
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span>
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">If that’s the case, then reducing entry barriers won’t be
enough. What is then needed is reforming conduct policies to increase market
dynamics so as to help young dynamic firms flourish in case they are more
efficient and better than others, replacing the ineffective ones, which are
often older and less innovative. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><span style="font-family: "georgia" , "times new roman" , serif;">Indeed, a
recent World Bank </span><a href="http://documents.worldbank.org/curated/en/431711481813102900/pdf/WPS7919.pdf" style="font-family: georgia, "times new roman", serif;">policy
research paper</a><span style="font-family: "georgia" , "times new roman" , serif;"> finds that in the EU even though entry barriers still
matter, what is crucially if not more important for productivity to revive is
what happens</span><span style="font-family: "georgia" , "times new roman" , serif;"> to the firm in terms of policies behind the border, after market entry
has taken place. Or in other words, policy barriers related to the operations
of the firm such as the rules on the form of business or </span></span></span><span style="font-family: "georgia" , "times new roman" , serif;">the lack of recognition of insurances, lack of
clarity where social security contributions are recognized, etc. </span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">Incidentally,
this research also finds that the impact of conduct barriers is higher for
firms placed closer to the technology frontier, there where firms are more
productive by performing better, but that the impact of entry barriers
is greater for firms further away from the frontier, i.e. the laggards. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">Third, the
OECD report also calls for better diffusion or dissemination of innovation from
ahead-of-the-curve companies to the so-called second and third-tier group of
successful firms so that they become more productive, further increasing
overall productivity by spreading its benefits. As noted above, this would be particularly pressing
for the services sector. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">The three
items are somehow related. To the extent that productivity in services can be
increased, their intangible nature should make is easier to flow across borders
and firms facilitating them to enter into new markets or transmitting new business ideas through digital enabling
factors such as the internet, software and data. </span></span><br />
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span>
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">What then matters are policies
that enhance the digital entry of new firms and policies that target the increase of digital operations of existing productive firms in markets of especially services. M</span></span><span style="font-family: "georgia" , "times new roman" , serif;">uch of the policy attention to increase
Europe’s productivity should therefore focus on this part of the economy. </span><br />
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span>
<span style="font-family: "georgia" , "times new roman" , serif;">On that note,
more to follow soon!</span></div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-51237207280319071362016-12-01T07:21:00.002-08:002016-12-01T07:27:20.303-08:00Data localization in the EU: The threat from inside<div class="MsoNormal" style="text-align: justify;">
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">As growth
in the EU has remained low and the usual channels for recovery such as greater
investment or an increase in the working-age population remains far-fetched,
the omen is on creating higher productivity to restore economic recovery. Here,
the EU finds itself in a difficult situation as it has been caught in a productivity
slump now for many years. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">Therefore,
any measure that would further hurt EU’s productivity would be a reasons for
great concern. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">One example
is the measure of data localization that is now threatened to be on the table
again. Data localization concerns stem from the fact that citizens feel that
their data is not sufficiently protected when sent and stored abroad. That
concern is legitimate and policy makers should be aware of that. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">Yet data
localization is not the right answer. Although policy makers should strike the
right balance between societal needs and economic benefits, data localization
has proven to hurt the EU's economy more than it would protect European
citizens. A few factors may explain this. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">First, data
localization and its associated regulations excessively hurts producers and
users of data as they significantly hurt EU productivity, which is a measure of
the way in which we effectively use our economic resources. Our research has
shown that implementing regulations related to data will ultimately render
prices higher of consumers and lower economic output. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">Second,
data localization as such does not provide more security <i>per se</i>. On the contrary, data localization brings together the many
data of producers and consumer making it more interesting target for cyber
security attacks. Instead, spreading data would be a better option so as to
make it more difficult for hackers to target a so-called “honey pot” of data. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">Third,
spreading the storage of data also let the best suited servers to do the job of
providing safe and secured data. Obliging each member state to store its own consumers’
data on its own servers is no recipe for best practise. Some member states are
just better equipped to provide good storage of data than others because they
are better endowed with the economic necessities of doing so. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><span lang="EN-GB">Fourth, upfront
short-term economic losses would have to incurred by everyone. Our study shows
that assuming the existing explicit barriers on internal EU free flow of data
are removed, it would result in GDP gains that are estimated to be up to 0.06%
of GDP, equivalent to 8 billion euros.</span><o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal">
<span lang="EN-GB"><span style="font-family: Georgia, Times New Roman, serif;">In short,
the EU has created a single market in great part to enhance economic wellbeing
of its citizens. That has been done through abolishing burdensome regulations
that otherwise would inhibit productivity, ultimately hitting on economic
growth.</span></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, "Times New Roman", serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, "Times New Roman", serif;">The EU’s
future economic growth lies in the digital age in which data flowing across
European borders is a crucial factor, just as services, goods, capital and
people. Establishing a truly single European market now also demands one for
data. </span></div>
</div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-14414849016762223392016-11-24T01:11:00.003-08:002016-11-24T01:11:43.225-08:00A US retreat from TPP: What does services trade tell us?<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: Georgia, serif; line-height: 107%;">During last weekend’s </span><a href="http://www.nytimes.com/2016/11/21/opinion/a-retreat-from-tpp-would-empower-china.html?_r=0"><span style="background: white; font-family: Georgia, serif; line-height: 107%;">summit meeting</span></a><span style="background: white; font-family: Georgia, serif; line-height: 107%;">
of Asia-Pacific leaders in Peru, President Obama made the case that failure to
sign on to TPP would “undermine our position across the region”. It would mean
that if the US would not sign on the trade agreement, China would assert more
leadership in the Asia-Pacific and opening a way to negotiate trade rules. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: Georgia, serif; line-height: 107%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: Georgia, serif; line-height: 107%;">Trade patterns between
countries underpin the economic diplomacy behind any potential trade agreement.
That too for the TPP. If we focus on one area in which most TPP members have an
interest for future trade, namely services, that concern of changing trade
leadership may be true. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: Georgia, serif; line-height: 107%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: Georgia, serif; line-height: 107%;">The picture below shows the
so-called Trade Complementarity Index (TCI) for both the US and China with
regards to all TPP members (excluding US). This index provides us with an idea
how much the exports and imports of the US and China separately match with other
TPP members’ needs, or are complementary. A high index means a good “fit” in
terms of trade relations and indicates a great potential for a trade agreement
between members. <o:p></o:p></span></div>
<div class="MsoNormal">
</div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: Georgia, serif; line-height: 107%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: Georgia, serif; line-height: 107%;">Note that this picture tells us
the trade complementarity of cross-border trade in services or what others have
called “</span><a href="https://www.brookings.edu/wp-content/uploads/2016/06/internet-transatlantic-data-flows-version-2.pdf"><span style="background: white; font-family: Georgia, serif; line-height: 107%;">digital deliverable services</span></a><span style="background: white; font-family: Georgia, serif; line-height: 107%;">”, which are services that are traded over the
Internet. Incidentally, TPP has the standard when it comes to the cross-border
flow of data, a factor that reinforces trade in digital services.</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: Georgia, serif; line-height: 107%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: Georgia, serif; line-height: 107%;"><br /></span></div>
<div class="separator" style="clear: both; text-align: justify;">
<a href="https://2.bp.blogspot.com/-C9O3DROKFlU/WDat1gPgU7I/AAAAAAAAAdA/mJfMUWodI-EwhGGM9jIg4ErVirLSD-TyACEw/s1600/TPP%2BUSA%2BCHN.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://2.bp.blogspot.com/-C9O3DROKFlU/WDat1gPgU7I/AAAAAAAAAdA/mJfMUWodI-EwhGGM9jIg4ErVirLSD-TyACEw/s1600/TPP%2BUSA%2BCHN.png" /></a></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: Georgia, serif; line-height: 107%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, serif;">The pattern that arises is that initially the gap between the
US’s and China’s trade match with other TPP partners in services trade narrowed.
However, since 2008 it has widened pointing out that the US has found better
trade complementarity with other TPP members. Around that time the US entered
the trade talks.</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, serif; line-height: 107%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, serif; line-height: 107%;">Whether the widening gap is really due to US involvement
remains to be seen, but what clearly stands out is that at some point China was
as much a good fit for trading services with these TPP partners as the US was. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, serif; line-height: 107%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, serif; line-height: 107%;">Yet, already before the US jumped in the negotiation talks,
China’s services trade complementarity diminished in the region. This downward
trend seems to be of a longer nature, which may be due to China’s regulations
in the digital economy over these years. If that’s the case, it puts a serious
question whether China can lead the region in terms of services trade, an item
the Chinese government is eager to capitalize on. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, serif; line-height: 107%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, serif; line-height: 107%;">On the one hand, therefore, in a scenario that the US won’t
ratify the trade pact, nothing tells us that this pattern could return. This
would reinforce China’s role in the region regarding services trade that can be
traded over the internet and indeed may therefore assert its influence to set
the rules in this area. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: Georgia, serif; line-height: 107%;"><span style="background-color: transparent;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: Georgia, serif; line-height: 107%;"><span style="background-color: transparent;">On the other hand, Chinese decline of the trade pattern in digital
delivered services is no good recipe to underpin China’s potential future role
in the region. If China was serious about fortifying these trade relations, it
should start thinking about some of its digital regulatory policies that enable
digital services trade.</span> <span style="color: #333333; font-size: 13pt;"><o:p></o:p></span></span></div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0tag:blogger.com,1999:blog-511418575454177527.post-4263468473535694242016-11-17T01:07:00.000-08:002016-11-23T03:05:31.292-08:00How should the EU Article 29 Working Party look like?<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">As
traditional trade measures at the border such as tariffs have come down and as
more items in the economy have become tradable, policy reform has focused on
dismantling trade barriers that are “behind-the-border”. </span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">These measures span a
wider variety of goods and services on which traditionally only domestic
regulators had a quasi-monopoly on to develop and advice policy. Over time, as these
behind-the-border measures inhibit trade, regulators need to strike a balance
with trade negotiators. <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">This is
also true for “trade in data” or the cross-border flow of data. Data has become
an item that crosses borders many times and which form an item in trade
agreements these days such as in TPP. </span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">This is also true for the EU where the Privacy
Shield has been developed, which is a framework that provides companies on both
sides of the Atlantic a mechanism to comply with EU data protection requirement
when transferring personal data from the EU to the US in support of
transatlantic trade. <o:p></o:p></span></span><br />
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span>
<span style="font-family: georgia, "times new roman", serif;">Before the
European Commission could adopt the shield, the Article 29 Working Party
committee or the data protection authority, which is in fact not the regulator, but a platform that provides general expert advice on data protection matters and advised the Commission by giving an opinion on the proposal. This is a good thing as certain rights need to be
protected in light of an item that becomes increasingly an economic one. </span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;">It’s a
classic example where policy makers need to strike a fine balance between an
economic need (commerce) and a noneconomic goal (right of privacy). The point for
this platform, which is composed of National Data Protection Authorities from each member state, the European Data Protection Supervisor and the European Commission, is to provide an opinion that would entail a removal of overly burdensome and restrictive regulations in attempt no
efficiency is lost and yet secure the concern of data subject. </span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">However, the
issue here is the configuration of the Working Party committee itself. Since the Working Party committee will ideally need to strike this balance between commerce and societal
benefits, one would expect that their membership composition would be
distributed accordingly. </span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "georgia" , "times new roman" , serif;">This is not the case however. Far from it as a matter
of fact. The platform has in total 30 members (excluding one member
from the European Commission). One from each member state plus a supervisor and
an assistant supervisor. By checking each member’s background, the figure below
presents the composition of the committee members by professional
background. </span></div>
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<span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></div>
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<span lang="EN-GB"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></div>
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<a href="https://4.bp.blogspot.com/--N1oEIpYUxI/WC1yIFV8lnI/AAAAAAAAAcw/rMBpzmLbCS0uOsGHWmGg5JRFZ8KAh6ugwCLcB/s1600/WP29.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://4.bp.blogspot.com/--N1oEIpYUxI/WC1yIFV8lnI/AAAAAAAAAcw/rMBpzmLbCS0uOsGHWmGg5JRFZ8KAh6ugwCLcB/s1600/WP29.jpg" /></a></div>
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<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></span></div>
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<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></span></div>
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<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></span></div>
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<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></span></div>
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<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></span></div>
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<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></span></div>
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<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></span></div>
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<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></span></div>
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<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></span></div>
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<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></span></div>
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<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></span></div>
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<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;">What
strikes me is that a large majority of its members have a noneconomic
background. The fact that most members are lawyers comes as no surprise and no
reason for worry as the platform advises on European Community law. However, there are only two members with an economic
background and a third one with a business background. Other educated professions
that were included ranges from policeman to journalist. </span></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;"><br /></span></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-GB"><span style="line-height: 107%;"><span style="font-family: "georgia" , "times new roman" , serif;">In age where the issue
of data becomes an essential ingredient for economic activity, data subjects
need protection. Yet, reaching the fine line between economic and noneconomic concerns
starts in my view with a balanced composition of expertise and skills of those
who provide expert advice upon policy. </span></span></span></div>
Erik van der Marelhttp://www.blogger.com/profile/03711140501525629969noreply@blogger.com0