Assessing Barriers to Trade in the Distribution and Telecom Sectors in Emerging Countries

We compute ad valorem equivalents (AVEs) for the regulation in three service sectors (i.e. fixed telecom, mobile telecom, distribution) applied by selected emerging countries. We start with qualitative information on the restrictions applied by each country in each sector on the basis of which we apply a multivariate statistical approach, to transform this qualitative data into a trade restrictiveness synthetic index (STRI). In a second stage we estimate the average impact of STRI on price cost margins, using a method avoiding the usual two-stage estimation. In the third stage, this impact is used to calculate the AVE of the STRI estimated in the first step. It is shown that the STRI has a significant effect on the price-cost margins of the individual firms only when controlled for Regional trade Agreements and exception to the MFN clause in the considered sector. Lastly, we compute tariff equivalents for the STRIs previously calculated using the estimated impact. More than half our AVEs are larger than 50% and one AVE out of six is above 100%.