1. Testing the STRI: gravity regressions and trade costs analysis
OECD Experts Meeting on the Services Trade Restrictiveness Index
Paris, 2-3 July 2009

2. Approaches to quantifying barriers to trade in services
Top Down
Bottom Up
Observation of empirical data
Estimate discrepancies in prices or trade flows
Empirical index number
Relation to policies
How much does each measure contribute to the index?
STRI
Weights
How important is each measure?
Expert judgement, equal weights, statistical or econometric methods
Scores
Assigning numbers to observed policies
Observation of policies
Which to include?

3. The “true” STRI The “true” STRI (Anderson and Neary approach):
“should ideally be a single trade cost estimate that, when replacing all existing fixed and variable trade costs, will yield the same trade volume and the same number of trading partners as the existing trade regime”
Neary (2009)
Empirical index numbers:
e.g., trade-weighted average tariff (goods)
Novy measure of trade costs
Theoretical index numbers:
e.g., STRI index
The hard part is their intersection

4. Does the STRI measure what it is supposed to measure?
Gravity regressions of bilateral trade, bilateral FDI stocks and bilateral sales of foreign affiliates:

5. Robustness check – Poisson regressions

6. Robustness check – Cross-section (2005)
Multilateral resistance is directly calculated following Straathof (2009).

7. STRI and trade costs
Bilateral trade costs are calculated using the formula developed by Chen and Novy (2009):
We assume that sigma is equal to 8.
We can rank countries according to their trade-weighted average trade costs.

8. Regressions on trade costs

9. Concluding remarks
Despite some issues in the way we can test the STRI in econometric analysis, preliminary results show that it seems to measure what it is supposed to measure:
It acts as a trade cost in gravity regressions
It is correlated with an estimation of bilateral trade costs
While the STRI is negatively and significantly correlated with at least one measure of trade in each of the four pilot sectors…
… it is in professional services and telecommunications that the index is the most robust in econometric analysis.
Data and methodological issues in the estimation of a “top-down” STRI
The advantage of the “bottom-up” STRI is that it is an exogenous variable that can be used in quantitative analysis.