Landlocked or Policy Locked? How Services Trade Protection Deepens Economic Isolation

Abstract

A new cross-country database on services
 policy reveals a perverse pattern: many landlocked countries
 restrict trade in the very services that connect them with
 the rest of the world. On average, telecommunications and
 air-transport policies are significantly more restrictive in
 landlocked countries than elsewhere. The phenomenon is most
 starkly visible in Sub-Saharan Africa and is associated with
 lower levels of political accountability. This paper finds
 evidence that these policies lead to more concentrated
 market structures and more limited access to services than
 these countries would otherwise have, even after taking into
 account the influence of geography and incomes, and the
 possibility that policy is endogenous. Even moderate
 liberalization in these sectors could lead to an increase of
 cellular subscriptions by 7 percentage points and a
 20-percent increase in the number of flights. Policies in
 other countries, industrial and developing alike, also limit
 competition in international transport services. Hence,
 "trade-facilitating" investments under various
 "aid-for-trade" initiatives are likely to earn a
 low return unless they are accompanied by meaningful reform
 in these services sectors.