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8ЭКОНОМИЧЕСКИЕ НАУКИ ECONOMIC SCIENCES
ASSESSMENT OF THE IMPACT OF RESTRICTIONS ON TRADE IN TELECOMMUNICATION SERVICES ON THE INVESTMENT AND COMPETITIVE
ENVIRONMENT IN THE ICT SECTOR
FATALIYEVA GULNARA
Ph.D in Economics, leading researcher Institute of Economics of the Ministry of Science and Education, Baku, Azerbaijan
Annotation. The impact of restrictions applied on telecommunication services trade on the investment and competitive environment in the ICT sector, as well as on economic development on the example of world countries is studied in the article. For this purpose, assessments were carried out by applying the correlation method with reference to several relevant indices. The results of the study showed that if restrictions on trade in telecommunication services are numerous or severe, this will have a negative impact on investment and the competitive environment in the ICT sector, as well as on economic development. Also, according to the assessments, it was determined that restrictions on trade in telecommunication services have a moderate negative impact on the competitive environment, while the negative impact on investments in the ICT sector and GDP per capita is weak.
Keywords: ICT sector, telecommunication services, investment, competition, economic development, index.
Introduction
The information and communication technologies (ICT) sector is one of the fastest growing sectors of the world economy. Within the ICT sector, the telecommunication segment has a large share. Fixed telephone network, mobile telephone communication, and the Internet together cover the telecommunication sector. Most of the revenues (80%) in the telecommunication sector are generated from services. Telecommunication services include wired and wireless telecommunication activities [6, p.36]. These services involve the transmission or processing of signals between different locations. A transaction between two parties in different countries for the purpose of transmitting or processing a signal is considered international trade [2, pp.7-8].
In general, it should be noted that services account for about two-thirds of global GDP. Studies have shown that barriers to trade in services are more prevalent than in trade in goods [6, p.15]. Different types of restrictions are applied to the trade of telecommunication services in world countries. The number of restrictions varies from country to country. The degree of strict regulation or liberalization of trade in telecommunication services, in turn, affects the ICT market. Therefore, it is important to carry out studies to investigate such effects. In this regard, the purpose of the current research was to assess the dependence between the restrictions on the trade of telecommunication services and investment and competitive environment in the ICT sector, as well as the economic development.
Materials and research methods
As research methods in the article, comparative and statistical analysis, a systematic approach, generalization , and correlation analysis methods were used. During the analysis in the research work, the reports of influential international organizations - Organization for Economic Cooperation and Development (OECD), United Nations (UN) and International Telecommunication Union (ITU), as well as the statistical data of the World Bank (WB) were used. Following indices were referred to in the research work:
a) Telecommunication services trade restrictiveness index (TSTRI) - is prepared by the OECD and contains information on restrictions on trade in services in the telecommunication sector. Index ranges from 0 (complete openness to trade and investment) to 1 (complete closure to foreign service providers). TSTRI consists of 5 sub-indices: 1) Restrictions on foreign entry (foreign equity limitations, requirements that management or board of directions must be nationals or residents,
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foreign investment screening, restrictions on cross-border mergers, and acquisitions, capital controls, regulations on cross-border data flows and a number of sector-spesific measures); 2) Restrictions on movement of people (entry visa quotas, economic needs tests and duration of stay for foreign natural persons providing services as intra-corporate transferees, contractual services suppliers or independent service providers, recognition of foreign qualifications and licensing in regulated professions); 3) Barriers to competition (anti-trust policy, government ownership of major firms and the extent to which government-owned enterprises enjoy privileges and are exempt from competition laws and regulations, sector-spesific pro-competitive regulation in network industries); 4) Regulatory transparency (consultations and dissemination prior to laws and regulations entering into force, administrative procedures related to establishing a company, obtaining a license or a visa); 5) Other discriminatory measures (discrimination of foreign services suppliers as far as taxes, subsidies and public procurement are concerned, and instances where national standards differ from interntional standards where relevant) [3, p.37].
b) Competition framework in the ICT sector (CFICTS) - is one of the 4 sub-indices of the ICT Regulatory Tracker Index compiled annually by ITU. This indicator measures the level of competition in the main market segments of the ICT sector and countries are scored on a scale from 0 to 28 points.
c) Investment in telecommunication services (% of GDP) - is the ratio of investments by telecommunication service providers in the acquisition or modernization of fixed assets to GDP in current US dollars. This indicator is one of the components included in the Global Knowledge Index prepared by the UN.
Research results and discussion
International experience in the field of telecommunication services trade restrictions
Telecommunication sector represents an infrastructure sector that provides important services for the economy in the modern information society we live in. Technological progress, implemented reforms and liberalization measures in the telecommunication sector, which was dominated by state monopolies in the past, have turned this field into a dynamic sector [2, pp.26-27].
Diagram 1 contains information about the scores of countries based on the Telecommunication services trade restrictiveness index. The ranking is illustrated from countries with more restrictions to the countries with fewer restrictions. As can be seen, the scores of the countries vary in the range of 0.7 to 0.1. In general, it should be noted that there are no countries that are completely closed or fully open to trade in the telecommunication sector.
According to the Diagram, countries with a restrictive trade environment in the field of telecommunication services include Vietnam, China, Indonesia, Malaysia, Thailand and India from the Southeast Asian countries, as well as Kazakhstan and Russia from the CIS countries. These countries tend to have more closed markets, which means that they impose many restrictions on foreign capital and foreign service providers. In the mentioned countries, the main providers in the market are also under government control.
Among the 50 countries included in the analysis group, the countries with the most liberal policies in the field of trade in telecommunication services are the United Kingdom, Spain and Ireland. These countries, which have the lowest index value, apply few restrictions in the field of trade policy. Also, most of the telecommunication companies in these countries are owned by the private sector. In general, all the top 10 countries in the ranking that demonstrate openness to trade are included in the European area. The United States, ranked 11th, also represents the open market.
Diagram 1.
Telecommunication services trade restrictiveness index, 2022
A
204
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о t-
Compiled by the author based on the sourse [4]
As can be seen, the policy of restricting trade in services in the telecommunication sector varies considerably between countries. Most countries make some changes to this policy over the years. For example, Russia (0.06), Slovenia (0.04) and Poland (0.04) were the countries that most restricted trade in telecommunication services in 2022 compared to 2017. Examples of other countries that followed a protectionist policy during this period include Hungary, Austria, Finland, as well as Spain, Denmark and Lithuania located on the right side of the Diagram 1. The listed countries slightly changed their positions with an increase of 0.03 points and shifted to the leftside. In contrast, Brazil (0.03), Canada (0.02) and Estonia (0.02) are among the three leading reformers with more easing measures in the field of restrictions (Diagram 2).
Diagram 2.
Countries that changed their positions the most in the Telecommunication services trade restrictiveness index in 2017-2022
tries restricting trade Countries liberalizing trade Slovenia; 0,04 Poland; 0,04
n ^ ■
Canada; -0,02 Estonia; -0,02
i,03
Compiled by the author based on the sourse [4]
For comparison, it should be noted that over the last 5 years, 27 of the 50 countries included in the Index have made reforms in the direction of making the trade environment more closed, and 10 have made reforms in the direction of liberalization.
Assessment of the impact of telecommunication services trade restrictions on the competitive environment in the ICT sector
0,07 0,06 0,05 0,04 0,03 0,02 0,01 0,00 -0,01 -0,02 -0,03 -0,04
Russia; 0,06 Coun
D
Brazil; -(
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Competition is one of the main indicators determining the development of ICT market. A number of factors affect the effectiveness of the competitive environment. One of them is the state's policy regarding the trade of services performed in the telecommunication sector.
Based on the scores of world countries on the Telecommunication services trade restrictiveness index and the Competition framework in the ICT sector sub-index, the evaluations by establishing a correlation method show the existence of a relationship between the mentioned indicators. More precisely, there is a moderate negative correlation (R= - 0.6463) between these Indices (Diagram 3). This means that the more a country regulates trade in telecommunication services, the more competition in the country's ICT sector will be weakened, or vice versa. For example, according to the results of the research carried out on the sample of 50 world countries, Vietnam (0.70 points), which comparatively has the most restrictive trading environment in the Telecommunication services trade restrictiveness index (possible score ranges from 0 to 1), also has the lowest position (19.33 points) in the Competition framework in the ICT sector sub-index (possible score varies from 0-28). China, Kazakhstan, Russia are also among such countries. These countries are located in the lower right corner of Diagram 3.
Diagram 3.
The relationship between the Telecommunication services trade restrictiveness index and Competition framework in the ICT sector sub-index
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Spain L^rnimiiFMami R= - 0,6463
Denmark Hungary Brazil Iceland India United Kingdom Ita'y Chile
Poland France Mexico Singapore T .
portugdP.Awst5easNwxwWralyang p Indonesia
Estonia
T . . T . Japan LatviaLuxembourgTurkey
Czech Republic
Israel
USA Costa Rica
Malaysia Thailand
Canada Kazakhstan
Russia
South Korea
China
South Africa
0,1 0,2 0,3 0,4 0,5 0,6 0,7
Telecommunication services trade restrictiveness index, 2022
29
0
Compiled by the author based on the sourse [1;4]
In contrast, the first 10 countries with liberal policies in the Telecommunication services trade restrictiveness index exhibited the highest positions (27-28 points) in the Competition framework in the ICT sector sub-index. These countries, which demonstrate openness to trade services in the telecommunication market, are located in the upper left corner of the Diagram 3.
At the same time, it should be noted that some countries have shown a different trend. For example, Indonesia (0.62 points), which was in 3rd place, and India (0.35), which was in 8th place in terms of the number of trade restrictions, were able to score 27 and 28 points respectively in the Competition framework in the ICT sector sub-index.
The United States (0.15 points), which is distinguished by its liberal policy in the field of trade in services, showed a slightly lower result (24 points) in the Competition framework in the ICT sector sub-index than the other 10 countries ahead of it in the TSTRI.
A
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The study also assessed the relationship between the sub-indices that make up the Telecommunication services trade restrictiveness index (TSTRI), as well as between these subindices and the Competition framework in the ICT sector sub-index (CFICTS). For this, the correlation matrix method was used. In the model, sub-indices are marked as S1; S2; S3; S4; S5, according to their ranking.
As can be seen from the data of Table 1, there is a positive and strong correlation between the Telecommunication services trade restrictiveness index and its 1st and 3rd sub-indices. More precisely, Restrictions on foreign entry (R=0.8083) and Barriers to competition (R=0.9527) sub-indices have a greater role in the overall Index than other sub-indices.
Table 1
Correlation matrix between the Telecommunication services trade restrictiveness index, its
TSTRI S1 S2 S3 S4 S5 CFICTS
TSTRI 1
S1 0,8083 1
S2 0,1264 3,32E-17 1
S3 0,9527 0,6205 0,0728 1
S4 -0,0873 -0,1756 0,0493 -0,1332 1
S5 -0,0348 -0,1186 0,0698 -0,0789 0,0045 1
CFICTS -0,6463 -0,7047 0,2375 -0,5560 0,0947 -0,0389 1
206
Compiled by the author based on the sourse [1;4]
According to the analysis, it should also be noted that the increase in Restrictions on foreign entry is one of the main factors that cause the increase in Barriers to competition. This is evident from the moderate positive correlation coefficient (R=0.6205) between both sub-indices.
Also, the higher the Regulatory transparency, the lower the Barriers to competition, which indicates a negative relationship (R= - 0.1332) between both indicators.
At the same time, the negative correlation between the Competition framework in the ICT sector (CFICTS) and the Restrictions on foreign entry (R= - 0.7047) and Barriers to competition subindices (R= - 0.5560) is more noticeable. Rather, closing the market to foreign service providers and restricting foreign capital, as well as barriers to competition in the field of service trade, mainly state ownership of large enterprises, have a more adverse effect on competition in the ICT market. In contrast, Regulatory transparency, such as simplification of administrative procedures related to obtaining a license or visa, has the potential to positively influence competition in the sector (R=0.0947).
Assessment of the relationship between telecommunication services trade restrictions and investment in the ICT sector
The progress of the ICT sector is highly dependent also on investments in this sphere. It is important to note that the telecommunication sector, characterized by rapid technological changes, is an investment-oriented field. According to the results of the evaluations conducted on the study of dependence between the Telecommunication services trade restrictiveness index and the Investment in telecommunication services indicator in a sample of 47 world countries, it appears that there is a negative relationship between these indicators. However, it should be emphasized that this dependence is weak (R= - 0.2303) (Diagram 4).
Diagram 4.
Correlation between the Telecommunication services trade restrictiveness index and Investment in telecommunication services (% of GDP) indicator
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Australia Peru
R = - 0,2303
25
« Я
tj rj
151
i ST §
Slovenia
"hile Canada Slovakia Greece hile Thailand
South Africa
Spain
USA Italy
France Costa Rica
Switzerland South Korea Malaysia
Switzerland Soi Denmark Mexico Brazil Poland Norway
Estonia
Belgium
Iceland
- Portugal Turke
Germany Czech Republic Israe|
^atvia Singapore
United Kingdom Austria Finland
The Netherlands
Ireland
Lithuania Luxembourg
Indonesia
China
Kazakhstan
0,1 Telec0o,2mmunication0 ,3services trad0e,4restrictivene0s,s5 index, 20220,6
Vyetnam
0,7
30
S» 5
0
0
Compiled by the author based on the sourse [4;7]
Based on the analysis, Vietnam, which scored the highest in the Telecommunication services trade restrictiveness index, is in the lower right part of the Diagram 4 with a zero result on the Investment in telecommunication services indicator. Kazakhstan, which is one of the countries that impose more restrictions on trade in services, stands out with the second lowest indicator (5.4%) in terms of the share of investments in GDP.
In 2022, Australia had the highest share of investments in telecommunication services in GDP (30.2%). In addition to this country, some countries located near the upper left corner of the Diagram 4, including Peru (27.5%), Slovakia (23.3%), USA (21.2%), Italy (20.8%), Hungary (20.4%) invested in fixed telephone network, mobile communication and Internet services in the amount of at least one fifth or more of their GDP. The score of the listed countries did not exceed 2 in the Telecommunication services trade restrictiveness index. That is, the listed countries have low regulatory barriers to service trade in the telecommunication sector.
Nevertheless, there are exceptions. For example, there are countries with a score of less than 2 in the Index, which also have an investment-to-GDP ratio of no higher than 10%. These countries include Austria (9.7%), Finland (9.3%), Ireland (8.2%), Lithuania (7.5%) and Luxembourg (6.2%).
Contrary to expectations, although China, Indonesia, and Russia are distinguished by strict regulation of trade in services, the ratio of investments directed to the telecommunication sector to GDP in these countries exceeded 10%. Also, Thailand and India, which share the 7th and 8th places in the ranking of the Index, have invested about a fifth or more of their GDP in the sector (23.2% and 28.1%, respectively).
Assessment of the impact of telecommunication services trade restrictions on economic development
Diagram 5 shows the relationship between the scores of 50 world countries of Telecommunication services trade restrictiveness index and their GDP per capita. As it can be seen, there is a negative relationship (R= - 0.3772) between the indicators. This means that when countries have a protectionist position in their policies related to the trade of telecommunication services, the economic development indicator is low or, on the contrary, when they prefer liberalism, the basis for economic development is created. However, it should be noted that the presence of such a dependence is not necessarily of a nature, since there are also exceptional cases. The weak correlation between the compared indicators can be justified by the predominance of exceptional cases.
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Diagram 5.
The dependence between the Telecommunication services trade restrictiveness
index and GDP per capita
140000
120000
Д00000
<s s CS V580000
a
S
£ 60000 SI 0-c
° 40000
20000
Luxembourg
R = - 0,3772
Switzerland Norway
USA Denmark
Swede
Singapore
Iceland
The Nether land;sUstralia Austria
Germany Finland Belgium Canada Israe' TT _ . , New Zealand United Kingdom France
Japan
Italy South Korea
Spain Slovenia
Estonia Czech Republic Portugal Lithuania
.Latvia Greece
SloVakP'ol,nSllngary Chile Costa Rica
Mexico Turkeyt. . Peru ColombiBrazil South Africa
MalaysiaRussia Thailand India
China Kazakhstan
Indonesia
0,05
0,15
0,25 0,35 0,45 0,55 0,65
Telecommunication services trade restrictiveness index, 2022
0,75
Compiled by the author based on the sourse [4; 8]
0
The United Kingdom, Spain, Ireland, Denmark, Germany, and the Netherlands are among the top six countries with the lowest scores on the Index for their openness to trade in telecommunication services. The GDP per capita of these European countries, which favor trade liberalism, is between 30,000 and 100,000 dollars. This means that the countries with the lowest score on the Telecommunication services trade restrictiveness index are also the best in terms of economic development.
Vietnam, China, Indonesia, and Kazakhstan, which are distinguished by their restrictive policy in the trade environment in the field of telecommunication and ranked in the top four due to their high score in the Index, are located in the lower right corner of the Diagram 5. The GDP per capita of these countries, which have a mostly closed market for foreign service providers, was below 13,000 dollars. Russia, Malaysia, Thailand, and India, which come next in the Telecommunication services trade restrictiveness index, are also among such countries in terms of living standards. The common feature for the mentioned states is that they do not belong to the group of developed countries.
The results of the data analysis also indicate that some countries are not subject to this rule. Thus, there are also highly developed countries where restrictions prevail in the field of trade in telecommunication services. Israel (0.33 points and GDP p/c=$52,170.7) and Iceland (0.31 points and GDP p/c=$68,727.6) are examples of this.
The situation is also different for several Latin American countries that scored low in the Index. More precisely, Costa Rica ($12,472.4), Peru ($6,621.6), and Colombia ($6,104.1) are among the developed countries according to their scores in the Index, despite being included in the group of developing countries in terms of living standards. The score of these countries, which are in the lower left corner of the Diagram, was around 0.17.
Conclusions
The article studied the effects of restrictions on the trade of services realized in the telecommunication sector, which is the main part of the ICT sector, on the investments directed to the ICT sector and on the competitive environment in this sector, as well as on the country's economic
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development. The results of the assessments conducted on the study of the relationships between the mentioned indicators show that there is a negative dependence between them. Thus, as a result of evaluations, it was determined that there is a negative dependence between the Telecommunication services trade restrictiveness index and the Competition framework in the ICT sector sub-index. This can be explained by the fact that countries with more restrictions on trade in telecommunication services have a weaker competitive environment in the ICT sector, or vice versa, as countries reduce the number of restrictions they impose, this, in turn, can lead to stronger competition in the sector. It should be noted that the negative correlation is moderate (R= - 0.6463).
Another assessment was made between the Telecommunication services trade restrictiveness index and the Investment in telecommunication services indicator.The result indicates a negative relationship between these two indicators. The strictness of restrictions on the trade of telecommunication services also has a negative impact on investment in the sector. However, it should be emphasized that there is a weak negative dependence (R= - 0.2303).
Modern telecommunication services are the basis of the information society we live in. The large number of restrictions on trade in these services also has a negative impact on economic development, albeit to a lesser extent. This conclusion was reached based on the result of dependence (R= - 0.3772) between the Telecommunication services trade restrictiveness index and GDP per capita.
Based on comparative analysis and assessments, it can be concluded that developing countries tend to have more restrictive services trade policies than developed countries. Of course, such cases are not valid for all the countries included in the study. The existence of exceptional cases is a clear evidence of this.
In conclusion, it should be noted that as countries reduce the barriers that weaken the competitiveness, they have the opportunity to take advantage of the benefits created by open markets. For this reason, service providers prefer to enter the competitive market. Open, competitive and wellregulated service markets, in turn, stimulate economic development.
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2. Nordäs, H. et al. 2014. "Services Trade Restrictiveness Index (STRI): Telecommunication Services", OECD Trade Policy Papers, No. 172, OECD Publishing, Paris. 33 p. [https://www.oecd-ilibrary.org/docserver/5jxt4nk5j7xp-
en.pdf?expires=1680757049&id=id&accname=guest&checksum=B5A33E36768521829DC 4895307EDD130]
3. OECD 2017. Services trade policies and the global economy. OECD Publishing, Paris. 106 p.[https://read.oecd-ilibrary.org/trade/services-trade-policies-and-the-global-economy_9789264275232-en#]
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5. OECD 2022. Services Trade Restrictiveness Index: Policy trends up to 2022. 51 p. [https://issuu.com/oecd.publishing/docs/oecd_stri_policy_trends_up_to_2022]
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7. UNDP 2022. Global Knowledge Index - Country Performance Summary. [https://www.knowledge4all.com/country-profile?CountryId=1016]
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