following services sectors: (1) accounting; (2) legal; (3) air transport; (4) rail transport; (5) road transport; (6) maritime transport; (7) insurance; (8) banking; (9) fixed line telecommunications; (10) mobile telecommunications; and (11) retail distribution. These sectors are well-chosen among the many services sectors since they are among the most important in international trade. Further, these sectors are important inputs into manufacturing production, and evidence has shown that greater access to business services that are inputs into manufacturing has significant productivity impacts on the manufacturing sector.<sup>3</sup> Although Borchert, Gootiiz and Mattoo (2012) have produced services trade restrictiveness indices from this database, this paper is the first to produce ad valorem equivalents based on this database. As a result, we are able to provide much wider coverage of ad valorem equivalents of the barriers than previous efforts that were based on assessments of the regulatory regimes in the services sectors.

Following the initial work of Hoekman (1995), estimates of the ad valorem equivalents of barriers against foreign service suppliers can be grouped into two methodological categories: (i) gravity model estimates; and (ii) estimates that rely on the collection of information on the regulatory barriers against foreign suppliers of services, typically convert that information into indices of restrictiveness and then use the restrictiveness index in econometric regressions to get AVEs.<sup>4</sup> The gravity approach has been employed by Francois (1999), Walsh (2006), Francois et al., (2007) and Kimura and Lee (2004). These authors regress the total bilateral cross-border trade in services on the national incomes of the two countries, distance between them, and dummy variables to reflect common border, common language or other variables. For example, Francois (1999) assumes that the difference between the actual and predicted trade flows reflects trade barriers. Assuming a demand elasticity allows a conversion of the quantity differences into a price impact or AVE of the inferred barriers to services trade. One limitation of this approach is that the estimates are based on cross-border trade in services; but in services it is often sales through foreign direct investment that are more important.<sup>5</sup> As Francois and Hoekman (2010)

> 3 Several studies using firm level data have established a link between increased access to services and increases in productivity. Using panel level data and controlling for FDI endogeneity, Arnold, Mattoo and Javorcik (2011) for the Czech Republic, Fernandes and Paunov (2012) for Chile, Shepotylo and Vakhitov (2012) for Ukraine and Arnold, Javorcik, Lipscomb and Mattoo (forthcming) for India find a significant positive relationship between FDI in services following liberalization (especially allowing foreign entry) and the performance of downstream domestic firms in manufacturing. See Francois and Hoekman (2010) for a review of the evidence from other sources.

> 4 See Deardorff and Stern (2006) and Dee (2005) for comprehensive reviews of the literature on estimates of the ad valorem equivalents of the barriers faced by foreign suppliers of services. See also Francois and Hoekman (2010). Walsh (2006) has an extensive review of the gravity approach.

> 5 Francois, Hoekman and Woerz (2007) bring foreign direct investment data into the approach.

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