Table III.2 Source: BDS, Table 2; One of the principal channels to get the benefits from services liberalization is through the increase in direct investment that often is the manner in which services trade takes place. 52 Even allowing for some imperfection in capital flows (which is reasonable, because investors do show some degree of risk aversion), Brown and Stern 53 show the benefit to global GDP rises nearly 10 fold (from just $76 billion to $704 billion) as liberalization takes the form of not just allowing trade in cross-border services but also allowing capital to be reallocated to new markets that need more services.
What goes unstated in these scenarios, but which is obviously true, is the domestic financial system as well as the competition and regulatory environment play key roles in determining whether capital will be appropriately allocated in this liberalized environment. Thus, these scenarios further bolster the argument concerning synergies among the policy reforms outlined to create an environment conducive to the New Economy. 52 The liberalization of movement of persons is a source of economic gain and fits under the umbrella of services liberalization, but there is no econometric analysis that attempts to quantify the gains of such liberalization for the broad APEC membership. .
53 Drusilla Brown and Robert M. Stern, Measuring and Modeling of the Economic Effects of Trade and Investment Barriers in Services, Review of International Economics, Vol 9, no. 2 May 2001. pp 262-286 is both an excellent summary of other’s work in this area as well as offering an important contribution by comparing the relative impact of liberalization of trade in services with liberalization of trade and investment in services.
- 35- Sectors Liberalized All sectors Mfg only Services only Group %GDP $Bil %GDP $Bil %GDP $Bil World 613 211 390 Canada 1.85 13.5 0.38 2.8 1.46 10.6 Mexico 1.84 6.5 0.32 1.1 1.49 5.2 USA 1.95 177.3 0.34 31.3 1.65 150 Japan 1.9 123.7 0.89 57.8 0.95 61.6 Australia 1.16 5.1 0.56 2.5 0.65 2.8 New Zealand 3.04 2.2 1.88 1.4 1.2 0.8 HK,China 3.36 4.3 1.56 2 1.78 2.3 China 1.50 13.6 0.54 4.9 0.79 7.1 Korea 2.48 14.1 1.4 8 0.91 5.2 Singapore 5.60 4.2 2.85 2.1 2.62 1.9 Chinese Taipei 2.78 9.8 1.58 5.6 0.49 1.7 Indonesia 1.65 4.2 0.06 0.1 0.79 2 Malaysia 2.81 3.4 1.99 2.4 0.54 0.6 Philippines 5.4 4.8 3.52 3.1 1.68 1.5 Thailand 2.62 5.4 1.47 3 1.12 2.3 Chile 2.40 1.9 1.29 1 1.17 0.9