as defined previously. They first introduce as a policy variable, the OECD STRI, which controls for market access conditions and to some extent regulatory transparency. As expected, the estimated coefficient on this variable is found to have a negative sign and is found to be statistically significant, which means that more restrictive policies (i.e. a higher index score) are associated with a reduction in bilateral services trade. Next they add explanatory variables that are relevant from a TFiS perspective: a regulatory heterogeneity variable that is not found to be statistically significant due to a strong correlation with the STRI; and a Digital Trade Restrictiveness Indicator that is found to be negatively related and statistically significant, which is in line with expectations. Their model therefore suggests that _ceteris paribus_ lower restrictions on cross border data flows, as one element of a broader transparency agenda (particularly for Mode 1), would tend to increase bilateral trade.

They finally include explanatory variables on regulatory governance and the business environment, but the coefficients are not found to be statistically significant. The authors assess that this is probably also due to their correlation with the STRI variable. A last variable introduced, which captures the general governance environment, is found to have a statistically significant positive coefficient. This implies that better governance (i.e. a higher score) can be associated with increased bilateral services trade.

In their exercise, the coefficient on the STRI remains negative and statistically significant at the 10% level or better in all cases. However, the magnitude of the coefficient decreases consistently as more TFiS indicators are added into the regression framework. This suggests that part of the effect of policy that is found in standard models of services trade is arguably not due to pure trade restrictiveness of those measures, but to a broader set of regulatory, governance, and transparency issues which are part of the TFiS variables described in the model. Table 3 show that the ad valorem equivalents of common measures of institutional quality, governance, and transparency are found to be larger than measures of policy restrictiveness. They also find that the ad valorem equivalents of data restrictions are of similar magnitude to policy restrictions in services.

Marel and Shepherd (2019) conclude that framing discussions of TFiS around the concept of reducing trade costs, specifically in terms of governance, institutions, and transparency, could potentially bring significant benefits in terms of increased integration of the global services economy. Their paper shows that besides market access policies, three types of other domestic regulatory policies hamper facilitating services trade, namely transparency measures (as covered by the OECD STRI category of Regulatory transparency), regulatory measures related to the cross-border movement of data, and the institutional regulatory capacity of governments and regulators.

In particular the latter category of regulatory measures is found to have a large impact on trade and therefore forms a major determinant for the total trade costs countries encounter when accessing markets abroad. Marel and Shepherd (2019) also conclude that a large component of total trade costs in services appears to be driven by the non-discriminatory aspect of trade policies which form part of the TFiS agenda and their findings suggest not only that behind-the-border measures are important, but that the bulk of that these non-discriminatory trade costs factors must be found in the governance structure of a country. Moreover, they find that the category of trade costs related to institutional governance becomes more important for countries with lower levels of economic development. In part this reflects poorer countries’ lower levels of institutional capacity, which therefore may explain high market access barriers in the first place. However, their analysis also reveals that irrespective of any level of discriminatory barrier, streamlining the institutional setup of regulators is likely to have high pay-offs especially for lower income countries.

10