Service Trade Restrictiveness and Foreign Direct Investment
Evidence from Greenfield FDI in Business Services
We study the impact of service trade restrictions on bilateral greenfield FDI projects in four different business services sectors within a gravity model framework. Project level FDI data for 42 destination countries and up to 41 source countries spanning the years 2014 to 2018 is taken from the fDi Markets database, and restrictions from the OECD’s Service Trade Restrictiveness Index (STRI). Using a negative binomial estimator to explain the number of bilateral FDI projects, we find that service trade restrictions represent a significant barrier for greenfield FDI. In 3 out of 4 business services we obtain statistically significant evidence of a negative impact. Furthermore, the explanatory power of the models generally improves when using the sub-components of the STRI (restrictions to foreign entry, restrictions to the movement of people and other service trade restrictions), instead of the single aggregated index value. Based on the estimated impacts of the different restrictions, we carry out a series of simple simulations of how the number of expected FDI projects would increase in response to a hypothetical policy reform, and propose some sector-specific policy recommendations.
JUNGMITTAG Andre;
MARSCHINSKI Robert;
2020-10-22
Publications Office of the European Union
JRC122116
978-92-76-23032-8 (online),
1831-9424 (online),
EUR 30399 EN,
OP KJ-NA-30399-EN-N (online),
https://publications.jrc.ec.europa.eu/repository/handle/JRC122116,
10.2760/77765 (online),
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