such as accounting and legal services are important in reducing transaction costs both for firms and individuals. Education and health services enhance the quality of lives and human capital, allowing people to engage productively in the modern economy.

In this section, we focus first on how services trade has an impact on two key aspects of economic performance: the growth of productivity and the evolution of comparative advantage. Improved access to finance, communications, transport, and other services, either through general reform or reform of trade and FDI policies, enhances firms’ productivity and other aspects of the performance of firms. The development of domestic services sectors and access to foreign services can also shift the pattern of comparative advantage. However, these benefits do not automatically follow from services liberalization, and a successful reform program will also need strengthened regulation and mechanisms to improve access to services, which is briefly discussed in the third part of this section.<sup>12</sup>

# **i. Asymmetric trade policy liberalization**

Figure 13 depicts the asymmetric trade‐opening in goods and services in East Asia. On the horizontal axis is a measure of tariff protection, while on the vertical axis is a measure of services protection —as measured by the Services Trade Restrictions Index, which takes values from 0 for completely open regimes to 100 for completely closed. Apart from Cambodia and Mongolia, all the countries in the study inhabit the top left quadrant, signifying that their levels of tariff protection are lower than the global median while their levels of services protection are higher than the global median.

Even though many of the larger East Asian countries are now similarly situated, the pace of reform has been strikingly different over the last two decades. Even though their regimes are still not very open, in China, Vietnam and Cambodia, WTO accession induced a move away from state‐ owned monopolies to more competitive private provision of telecommunications, financial, transport and a range of other services. In Indonesia, Thailand, Malaysia and the Philippines regimes at the turn of the century were less closed but the approach to reform has been more gradual and not always towards greater openness.

The World Bank Services Trade Restrictions Database reveals interesting policy patterns in East Asia. Although public monopolies are now rare, and few services markets are completely closed, numerous second‐generation restrictions remain on entry, ownership, and operations. Even where there is little explicit discrimination against foreign providers, market access is often unpredictable because the allocation of new licenses remains opaque and highly discretionary in many countries. Regulatory discretion is accentuated by a lack of accountability in a number of countries where regulators are not required to provide reasons for rejecting a license application or where foreign providers do not have the right to appeal regulatory decisions.

> 12Added urgency is lent to services reform by the deepening interlinkages between manufacturing and services sectors, manifested as the so‐called “servicification” of manufacturing, whereby services are increasingly embodied in manufactured goods. See Hallward‐Driemeier and Nayyar (2018) for a discussion of the trends and the implications of this phenomenon.

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