Economic Implications of Data Regulation

Annex D. Additional data localisation regulation simulations

D.1. Introducing the data localisation shocks one by one

Figure A D.1 displays the projected change in real exports and real GDP for the four scenarios with the three types of costs (trade costs, WTP, and data management costs) entered one at a time. In Scenario A No data localisation, there is a small contribution of trade cost reductions, because the interaction of data flow and data localisation policies on trade costs is considered. Lifting data localisation policies would for some regions with less restrictive data flow policies imply a reduction in the costs of transferring data and thus an expansion of trade. At the global level the impact is marginal, because this only happens in isolated cases. The contribution of WTP/trust is larger to the expansion of real GDP and real exports, since the isolated regions would move to a safeguards regime with higher levels of trust when restrictive data localisation policies are lifted.

Under Scenario B trade costs also fall and WTP/trust rises for regions and sectors with prohibitive data localisation policies but without ad hoc authorisation data flow policies. Hence, real GDP and exports are projected to increases because changes in trade costs and WTP/trust. However, the impact of reduced data management costs is small for the reasons described in the main text, i.e. the share of data management costs in total costs is small and the projected change in costs according to the BQ is small. Therefore, the overall projected change in GDP and trade is positive. Under Scenario C the largest contribution comes again from changes in trade costs and WTP/trust, because of the interaction of data flow and data localisation policies. The introduction of sectoral storage and flow prohibitions implies that in the concerned sectors data cannot be transferred anymore thus generating higher trade costs and reduced WTP/trust. Although only visible in the figure for real GDP and not for real exports because the impact is too small on the latter variable, there is an increase in data management costs thus generating larger reductions in real GDP and real exports. Finally, under Scenario D the effects are very similar to Scenario 4, because with a complete prohibition data flow and data localisation policies work out almost equivalently. The only difference is that under Scenario D also data localisation policies increase thus generating larger reductions in real exports and real GDP.

Figure A D.1. Contribution of the different data localisation shocks, added cumulatively

D.2. Impact on trade patterns from changes in data localisation policies

Figure A D.2 displays the projected change in real exports between regions with different data localisation regimes (upper panel) and in different geopolitical blocs (lower panel) for Scenarios A-C since Scenario D is almost identical to Scenario 4 and thus already discussed in Annex C. In Scenario A No data localisation the largest projected increase in exports is projected for trade between regions with regimes 1 and 2 and other regions, for example between 0 and 1 and between 1 and 2. The reason is that data management costs are projected to fall most for these regions. In regions with regime 0 there are no projected changes in costs. This is also the case for most regions with regime 3, because they tend to have both prohibitive data localisation and data flow policies.

The projected change in aggregate real exports under Scenario B Horizontal storage conditions is for most pairs of regions similar to scenario A because the projected changes in trade costs and WTP/trust dominate the impact of changes in data management costs which have only a marginal impact as discussed in the main text. Under Scenario C Sectoral storage and flow prohibitions the largest reduction in real exports is expected for trade between regions 1 and 2. The reason is that these regions would face both an increase in trade costs and a drop in WTP/trust.

The lower panel shows that projected gains and losses in real exports are concentrated in the Eastern and Western Bloc for the different scenarios. More specifically, exports are projected to increase in Scenarios A and B in the Eastern Bloc, since they would benefit most from the abolishment of data localisation policies (Scenario A) or the relaxation of data localisation policies from a prohibitive regime (Scenario B), whereas the reduction in exports in Scenario C are concentrated in trade with the Western Bloc, because they would face the largest increase in trade costs. Interesting is that in this Scenario C trade within the Eastern Bloc is projected to rise because of trade diversion away from trade with the Western Bloc countries.

Figure A D.2. The projected change in real exports between regions with different data localisation regimes (upper panel) and regions with different geopolitical alignment (lower panel)