Services trade restrictiveness: construction services

1. 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 Gonzales OECD Trade and Agriculture Directorate

2. Outline • Characteristics of contstruction • Review of the methodology • Results • Robustness checks • Relevance for trade • Conclusions

3. 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

4. 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

5. 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

6. 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

7. 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

8. Aggregation

9. STRI for construction services

10. STRI by category of restrictions

11. STRI according to the GATS framework

12. STRI by other classifications

13. 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

14. 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