Measuring the Barriers to Trade in Banking and Insurance Services in South Asia: An Empirical Exercise

Abstract:     
South Asian countries are having a large intra-regional trade in services. However, a large part of services trade in the region is informal, whereas the formal services trade faces a large number of barriers – implicit or otherwise. The measurement of barriers to trade in services, and the gains associated with removing such barriers, has been of keen interest in recent years, particularly in the context of inclusion of services and investments in SAFTA. In general, barriers to trade in services are unlike tariffs. They are typically regulatory barriers, rather than explicit taxes. The underlying economic rationale for policy reforms is that the removal of barriers to trade in services is likely to result in lower prices, improved quality, and higher competitiveness. As with trade in goods, restrictions on trade in services reduce welfare because they create a wedge between domestic and foreign prices, leading to a loss to consumer surplus. At the same time, services liberalization exerts an economy-wide influence as they constitute strong inputs to all other economic activities, including trade. Some studies identified several challenges related to the implementation of GATS commitments. But, very few have dealt with the barriers to trade in services in South Asia, and the ways forward to mitigate those in context of SAARC. Banking and Insurance services are more regulated service sectors in South Asian countries. One of the objectives of this study is to develop services trade barrier index in Banking and Insurance services in order to measure the barriers to trade in Banking and Insurance services in South Asia. An in-depth study exclusively focusing on Banking and Insurance services trade barriers will not only strengthen the banking and insurance services trade capacity of South Asian region but will also promote global as well as regional trade.

Keywords: trade in services, SAARC region, service trade, restrictiveness, trade reform, service trade restrictiveness index (STRI)

JEL Classification: F13, F15, F22

working papers series