Services trade restrictiveness: construction services

OECD Experts Meeting on the Services Trade Restrictiveness Index (STRI)Paris, 2-3 July 2009

Massimo Geloso Grosso, Anna Jankowska and Frédéric GonzalesOECD Trade and Agriculture Directorate

Outline

• Characteristics of contstruction

• Review of the methodology

• Results

• Robustness checks

• Relevance for trade

• Conclusions

2

Characteristics of construction services

• Accounts for a considerable share of GDP and employment

• Establishment abroad is often a necessity for trade to take place– Requires local production– Short versus more permanent establishment

• Government procurement is an important driver of demand

• Prone to corruption

3

Identification of barriers

• Identification according to three criteria– Regulations covered by the GATS framework– Restrictions included in RTAs– Regulations identified as relevant at the 2008 OECD Experts Meeting

on Construction Services

• Main sources of information– OECD PMR– OECD FDI Regulatory Restrictiveness Index– OECD Code of Liberalisation of Capital Movements– OECD Employment Statistics database

4

Categories of measures

• Restrictions on foreign ownership and other market entry conditions

• Restrictions on the movement of people

• Discriminatory measures, standards and equivalence

• Barriers to competition

• Regulatory transparency and licensing/permit systems

5

Classification of restrictions

• STRI according to the GATS framework– Market access and national treatment– Domestic regulation and other – Modes of supply

• Establishment of firms versus their ongoing operations

• Discriminatory versus non-discriminatory measures

6

Scoring and weighting

• All variables are transformed into binary– 90% of the measures are binary

• Expert judgment forms the basis for the weighting scheme– Weights to each category of measures according to the ranking at the

Experts Meeting on Construction Services– Equal weights have been applied to measures within each category

• Other weighting schemes have been employed as robustness checks– Principal component analysis– Equal weights – Random weights

7

Aggregation

8

Equal weights

Regulations

Expert weights

Foreign ownership and market entry

Movement of people

Discriminatory measures

Regulatory transparency and licensing

Barriers to competition

STRI

22.5%15% 12.5% 10%40%

STRI for construction services

9

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

STRI

OECD average

STRI by category of restrictions

10

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

LUX

GBR

BEL

CZE

ESP

DNK ISL

AUS

JPN

SWE

NLD

PRT

NOR

ITA

USA

FRA

NZL

CHE

DEU

AUT

HUN

FIN

KOR

POL

CAN

MEX

GRC

SVK

TUR

Regulatory transparency and licensing

Barriers to competition

Discriminatory measures and standards

Restrictions to the movement of people

Restrictions on foreign ownership and other

STRI according to the GATS framework

110

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

LU

XG

BR

BE

LC

ZE

ESP

DN

KIS

LA

US

JPN

SW

EN

LD

PR

TN

OR

ITA

USA

FR

AN

ZL

CH

ED

EU

AU

TH

UN

FIN

KO

RP

OL

CA

NM

EX

GR

CSV

KT

UR

Mode 4

Mode 3

Cross-modal

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

LUX

GB

RB

ELC

ZE ESP

DN

KIS

LA

US

JPN

SWE

NLD

PRT

NO

RIT

AU

SAFR

AN

ZLC

HE

DEU

AU

TH

UN

FIN

KOR

POL

CA

NM

EXG

RC

SVK

TUR

Domestic regulation and other

Market acces and national treatment

STRI by other classifications

120

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

LUX

BE

LG

BR

CZ

EE

SPD

NK

ISL

AU

SJP

NSW

EN

LDP

RT

NO

RIT

AU

SAFR

AN

ZL

CH

ED

EU

AU

TH

UN

FIN

KOR

PO

LC

AN

ME

XG

RC

SVK

TU

R

Operations

Establishment

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

LU

XB

EL

GB

RC

ZE

ESP

DN

KIS

LA

US

JPN

SW

EN

LD

PR

TN

OR

ITA

USA

FR

AN

ZL

CH

ED

EU

AU

TH

UN

FIN

KO

RP

OL

CA

NM

EX

GR

CSV

KT

UR

Non-discriminatory

Discriminatory

Robustness checks and relevance for trade

• STRI robust to all alternative weighting schemes

• Spearman rank correlations of weighting schemes– Equal weights: 0.92– PCA weights: 0.76

• STRI correlated with FDI stocks– Entry mode– Import data for construction services

13

Conclusions

• The most important restrictions take the form of domestic regulations and other measures constraining service provision after establishment

• The STRI is robust to alternative weighting schemes

• Some evidence that it is correlated with FDI– Results are not robust

14