# **4. Discussion**

The empirical results found in the previous section merit some further discussion. As a general observation and as visible in Figure 3, a large part of total trade costs in services appears to be driven by the non-discriminatory aspect of trade policy which form part of the TFiS agenda. True, even though the categories of Regulatory transparency and Barriers of competition as part of the OECD STRI cannot be distinguished from discriminatory Market Access measures, the fact that two additional TFiS measures provide clear significance in the empirical estimations points out that many so-called non-discriminatory behind-the-border measures determine trade costs in services and therefore facilitate trade in services. This result confirms empirical findings in previous works that also assess trade cost policies in relation to services trade (e.g. Miroudot and Shepherd, 2014; Nordås and Rouzet, 2015).

However, our 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. Our results show that the strongest cost variable explaining services trade is captured by the two World Bank governance indicators, and not so much behind-the-border measures covered by the World Bank’s Doing Business and Regulatory Governance indicators. The two governance indicators typically measure a country’s institutional capacity regarding policy frameworks and as such, when viewed from the perspective of services, are in our view more related to the regulatory institutional capacity of a country. Hence, to the extent that key words such as effective and meaningful market access, transparency and regulatory certainty matter for TFiS, our results show that they mainly appear to matter with respect to the institutional strength of governments and regulators dealing with behindthe-border policies in services.

Moreover, the institutional regulatory governance in services matters comparatively more for countries with lower levels of development when put in comparison with their market access policies. In other words, at any given the level of market access restrictions in services, the institutional component of the regulatory framework in which governments and regulators operate is becoming more important for services trade in less developed countries. This can be seen in Figure 4 in which on the horizontal axis the relative importance of the AVEs for the WGI variable is taken as a ratio over the AVEs for the STRI (lefthand panels) and the DTRI (right-hand panels). For each set of panels an economic performance indicator is plotted on the vertical axis. The panels clearly illustrate a negative relationship in the sense that reform in institutional governance in services become relatively more meaningful for countries with lower levels of GDP per capita, services productivity and services trade.

Another new finding is that compared to previous literature the policies with regards to data are in addition found to be important cost factors that facilitate services trade. The AVEs show that these behind the border measures can be as large as up-front market access regulations as mostly captured by the OECD STRI (Figure 4). Previous work has largely omitted this type of domestic regulatory policy. However, it should be noted that the empirical part of our analysis uses cross-border trade in services performed over the internet. When using services trade flows through foreign affiliates (i.e. Mode 3) instead, results might be different. That said, Andrenelli et al. (2018) show that some services are increasingly traded through Mode 1 as opposed to Mode 3 such as Publishing, Distribution and Financial services. These services are typically measured as very software-intense as shown by Ferracane and van der Marel (2018), being significantly impacted by data policies.

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