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Abstract
Market-oriented reforms launched at the beginning of the 1990s have had a profound impact on the restructuring of the service sector in transition economies. Reforms have introduced complex regulatory changes that substantially diminished the barriers to competition in services, thereby improving the supply of services. The article explores the patterns and effects of regulatory changes in the Central and Eastern European Countries (CEECs) on services exports in the period 1993–2004. The econometric analysis finds a statistically significant impact of the regulatory reforms on service exports. The effects are more significant for the period 1999–2004 and seem to suggest that efficient implementation of reforms during the accession process had beneficial consequences also for service exports. However, there is enough room for the CEECs to dismantle further the obstacles to services provision and to improve the governance of the service markets within the internal market for services.
Notes
1. The group of 10 CEECs is very heterogeneous in many respects. Eight of them have been EU members since May 2004 (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak Republic, and Slovenia) while Bulgaria and Romania joined the EU in 2007.
2. CEECs formally started the negotiations for accession in 1998.
3. Apart for real growth of services value added this can partly be attributed to a substantial rise in the relative prices of services and to the process of externalisation of service activities from manufacturing enterprises.
4. Whether through cross-border services provision or via FDI.
5. In some cases monopoly rents were simply transferred from state to private owners. Foreign players simply adjusted to local behaviour that enabled them to profit from distorted competition.
6. The quality of a regulatory regime is assessed on the basis of six regulatory principles: transparency, non-discrimination, avoidance of unnecessary trade restrictiveness, use of internationally harmonised measures, recognition of equivalence of foreign regulatory measures and competition principles (OECD, Citation2001, p. 11).
7. Nonetheless, in some cases outward FDI to service sectors preceded both exports of services and outward FDI to other sectors. For example, a Slovenian bank had already established a network of affiliations abroad in socialist times to facilitate manufactured exports. It was a part of a system-induced reversed internationalisation path whereby outward FDI emerged before inward FDI (Svetličič, Rojec, & Lebar, Citation1994, p. 106).
8. We deal only with traditional trade in services while foreign affiliate sales of services are not discussed due to the lack of data on this mode of services delivery.
9. In 2004 only Romania recorded a deficit in services trade.
10. In the period 1993–2004 the share of other services in service export increased only in Romania and Slovenia.
11. Business services and information–communication services are most often used in empirical analysis to approximate outsourcable services.
12. Transition indicators include small-scale privatisation, large-scale privatisation, enterprise reform, price liberalisation, foreign exchange and trade liberalisation, competition policy, banking sector reform, reform of non-banking financial institutions and infrastructure reform. The measurement scale for the indicators ranges from 1 to 4 + where 1 represents little or no change from a rigid centrally planned economy and 4 + represents the standards of an industrialised market economy (EBRD, Citation2005, p. 202).
13. Infrastructure reforms include changes in the regulation of electric power, railways, roads, telecommunications, water and waste water.
14. Current account convertibility, controls on inward FDI, interest rate liberalisation, exchange rate regime.
15. Even though competition policy reforms are relevant for enterprises irrespective of the sector we argue that the implementation of competition policy reforms bear more significantly upon enterprises in service sectors where competition tends to be weaker than in manufacturing.
16. We found strong and significant correlation between the CEECs' exports of goods and exports of services (excluding travel) in the observed period (the correlation coefficient amounts to 0.77).
17. While such a large degree of explained variance might seem unusual it is worthwhile mentioning that the most cited empirical estimations of gravity models also explain a very high degree of variability (between 65% and 89%), due largely to the interrelatedness of GDP and trade variables between major trade partners (Feenstra, Citation2004, pp. 148–150).
18. See endnote 12.
19. The rank of importance and significance of selected determinants was confirmed by stepwise regression.
20. Similar results were obtained when testing the export of all services (including travel).
21. Though the sample was smaller for the two sub-periods (47 for the first and 65 for the second sub-period) due to missing data, the regression estimation revealed high R-squared (over 86%) in any model and sub-period. It also consistently confirmed the relevance of selected determinants; again regulatory changes were found as the most important and highly significant determinant, followed by foreign demand while supply factors turned out not to be significant.
22. There was active competition enforcement in the field of liberal professions in several new member states (European Commission, Citation2004, p. 2).
23. In February 2006 the EU Parliament introduced several modifications to the draft text, the major being the elimination of country of origin principle.
24. It is worthwhile mentioning that these results could only be realised if the services directive is implemented including the country of origin principle that was abandoned in the final version of the directive.
25. In 2002 the European Commission compiled an inventory of the internal market barriers for services for the EU15 (European Commission, Citation2002) while no such collection was put in place for the new member states. Only four of them that are also OECD members (Czech Republic, Hungary, Slovakia, and Poland) supply data on regulation of services to the OECD International Regulation database.