Services Trade for Growth:Challenges and Opportunities for

Developing Countries

Iza LejarragaTrade Policy Linkages and Services Division

Trade and Agriculture Directorate

Harnessing Services for Sustainable Development:Opportunities and Challenges for Jordan

Jordan Enterprise Development CorporationAmman, 21-22 September, 2010

OECD Trade & Agriculture 2

OverviewOverview

Open Services Markets: What are the opportunities?

Liberalizing Services: What are the challenges?

Embedding Services Reform in a Growth Strategy

Measuring & Monitoring Services Reform: STRIs

OECD Trade & Agriculture 3

What are the opportunities?What are the opportunities?

OECD Trade & Agriculture 4

What are the challenges?What are the challenges?

OECD Trade & Agriculture 5

Embedding services reform in growth strategyEmbedding services reform in growth strategy

Services liberalization is a means to an end: linking it to growth Economic growth is necessary for development

Services reforms worth pursuing should be linked to growth/societal objective

Getting the largest bang for the buck of regulatory reform

Targeting sectors that have highest impact: binding constraints

Assess where are the binding constraints to growth at any particular time

Liberalize selectively those sectors that relax the binding constraints to growth

If access to capital is not binding the economy, liberalizing financial services won’t yield a significant effect on growth until the binding constraint is relaxed

A framework for prioritization: Growth Diagnostics Analytical tool to prioritize and rank interventions according to growth impact

Intuitive, accessible, practical: helps dialogue and coordination

OECD Trade & Agriculture 6

What reforms target constraints to entrepreneurship?What reforms target constraints to entrepreneurship?

High cost of financeLow return to economic activity

Low social returns Low appropriability

government failures

market failures

poor geography

low human capital

bad infra-structure

micro risks: property rights,

corruption, taxes

macro risks: financial,

monetary, fiscal instability

information externalities:

“self-discovery”

coordination externalities

Low domestic savings + bad international finance

bad local finance

High risk High cost

Low competition

Problem: Low levels of private investment and entrepreneurship

OECD Trade & Agriculture 7

Measuring Services Reforms: STRIsMeasuring Services Reforms: STRIs

What is a Services Trade Restrictiveness Index (STRI)? A composite indicator of services trade restrictiveness by sector and country

Not a measure of economic performance or commercial attractiveness

How is it developed?

Collects qualitative information on barriers to trade in services

Translates qualitative data into aggregated quantitative scores by sector

Classifies barriers by mode, MA/NT/DR, discriminatory, entry/ongoing operations

How can it be useful? Helps assess the impact of services trade barriers in the economy

Enables comparison of restrictions across countries at the sectoral level

Facilitates bilateral and multilateral negotiations on trade in services

Catalyzes domestic political bargaining on services regulatory reforms

OECD Trade & Agriculture 8

OECD Method for Constructing STRIsOECD Method for Constructing STRIs

OECD Trade & Agriculture 9

STRIs in MENA: Where does Jordan standSTRIs in MENA: Where does Jordan stand

STRIs: Selected MENA countries (2007)

Countries: Egypt, Jordan, Lebanon, Morocco

Sectors: financial (banking & insurance), telecoms, transport (air & maritime)

Data: questionnaires and country studies; de jure and de facto (implementation)

Method: aggregate (Anderson & Neary 1994) and modal (Dihel & Shepherd 2007)

Results: No country ranks most open/restrictive across all sectors

Jordan has relatively lower STRIs, except for insurance where it has many restrictions

Lebanon registers highest liberalization in banking (via mode 3; high protection mode 4)

Morocco has liberalized telecoms, banking, air transport (high barriers in maritime)

Egypt’s insurance and telecoms sectors are most liberalized; air most protected

OECD Trade & Agriculture 10

STRIs: Scores for Banking and Insurance Sectors

Aggregate Mode 1 Mode 2 Mode 3 Mode 4

Egypt 0.50 0.00 0.00 0.62 1.55

Jordan 0.88 2.27 2.10 0.32 1.88

Morocco 1.61 3.44 3.17 0.91 0.40

Aggregate Mode 1 Mode 2 Mode 3 Mode 4

Lebanon 0.20 0.00 0.00 0.04 2.69

Jordan 0.41 1.10 0.00 0.22 1.82

Egypt 0.85 1.49 0.00 1.03 1.07

Morocco 1.16 1.98 3.33 0.34 0.19

STRI Scores for Banking Sector

STRI Scores for Insurance Sector

OECD Trade & Agriculture 11

STRIs: Scores for Telecommunications (Fixed and Mobile)

Aggregate Mode 1 Mode 2 Mode 3 Mode 4

Morocco 0.59 0.00 0.00 0.67 1.16

Jordan 0.78 0.00 0.00 0.67 2.66

Egypt 0.99 0.00 0.00 0.77 2.24

Aggregate Mode 1 Mode 2 Mode 3 Mode 4

Morocco 0.80 0.64 2.05 0.81 0.73

Jordan 0.85 0.02 0.00 1.08 2.23

Egypt 1.22 0.64 2.05 1.36 1.81

STRI Scores for Fixed Telecoms Sector

STRI Scores for Mobile Telecoms Sector

OECD Trade & Agriculture 12

STRIs: Scores for Transport Sectors (Maritime & Air)

Aggregate Mode 1 Mode 3 Mode 4

Jordan 0.47 0.46 0.49 0.36

Morocco 0.49 0.41 0.60 0.36

Egypt 0.73 0.41 0.60 0.10

Aggregate Mode 1 Mode 3 Mode 4

Jordan 0.36 0.5 0.34 0.37

Egypt 0.55 0.75 0.52 0.17

Morocco 0.59 0.5 0.64 0.25

STRI Scores for Maritime Transport Sector

STRI Scores for Air Transport Sector

OECD Trade & Agriculture 13

Thank you for your attention!

OECD Trade and AgricultureOECD Trade and Agriculture

Contact: iza.lejarraga@oecd.org www.oecd.org