Can Regulatory Barriers influence Mode 1 Services Imports? Cross-Country Empirical Results from Select Sectors

Import of different services through Cross-Border Supply route (i.e., Mode 1) in an economy can increase with wider internet usage therein. In practice, however, restrictive policy framework often causes a dampening effect on the digitally enabled components of services trade. In a cross-country framework involving 50 countries over 2014-17, the current analysis explores this relationship for six major service categories, which are, along with other channels, supplied significantly through digital medium. The study adds value to the existing literature in the following manner. First, along with the measures for country-level services trade barriers, indices for regulatory heterogeneity have been incorporated in the empirical model. Second, the gravity model in the current context compares two alternative scenarios - one with a smaller number of potential exporters (top 10 exporters) and the other with a more diverse (top 30 exporters) group. The empirical results reveal considerable variations across sectors in direction and magnitude of the effect of deeper internet usage on service imports in the presence of regulatory barriers, with crucial policy implications.