qualify in the US; or to pure waste where the measure is a frictional barrier, e.g. delays in granting a license which oblige foreign professionals to remain unemployed or to accept unskilled jobs.

It is possible to obtain a rough estimate of the financial cost of the regulatory burden on Indian professionals – noting, of course, that at least some of this burden may be necessary to remedy deficiencies in their education, training and experience. Thus, on average, every year over the period 1995-2000, 1092 Indian doctors entered the US medical system (Table 3). Each incurred a cost of $4,640 to obtain a visa, take the three steps of the professional examination and in licensing fee. Each had to go through a period or graduate medical education of between 3 to 6 years depending on the specialty and the state, irrespective of prior qualifications and experience. Then those on a J1 visa (most foreign doctors) were obliged to spend 3 years working in an underserved area at relatively low wages. Given that the average earnings of a doctor is shown by the census to be around $125,000, the earnings foregone by a foreign doctor are likely to be at least $100,000. The implication is that all the Indian professionals that entered in a particular year paid a regulatory tax of $114 million. Similar, conservative estimates suggest that the 10,000 or so Indian professionals that entered just the four professions that we are focusing on, paid a “regulatory tax” of around to $750 million.

This estimate needs to be qualified in several respects. At least some of the regulatory requirements may be justified by the need to ensure compliance with locally desired levels of competence. In fact, it is not just foreign professionals but also professionals from other US states who must in some cases fulfill regulatory requirements imposed by a particular US state. The heterogeneity of standards in a source country like India and the difficulty in observing true levels of professional competence, also lends legitimacy to at least some of the regulatory requirements.

Furthermore, the regulatory constraint is not always binding. In particular, the fragmentation of services facilitated by advances in information technology has made it possible to trade unregulated parts of services. In architecture, the preparation of basic plans and designs can be outsourced to individuals who have not been locally licensed, whereas conformity with local requirements and ultimate responsibility rests with the licensed professional. In legal services, research and documentation can be similarly outsourced, whereas representation in courts must be by a local firm. In accounting, bookkeeping can be outsourced, whereas conformity with local requirements and ultimate responsibility rests with the local professional. Thus, the market for “intermediate” services is increasingly contestable even though entry into the “final” stage is still affected by regulatory requirements.

How far can recourse to local “final” services help overcome regulatory barriers? To a large extent if these services are supplied efficiently and competitively. The efficiency condition relates to whether the host country actually has a comparative advantage in the production of final services. The competitiveness condition would be fulfilled if the host country imposed no unnecessary barriers to entry into the final stage. If either condition is violated, the regulatory obligation to use local final services creates an excessive wedge between international service providers and local consumers, potentially hurting both.

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