The Costs of Data Localisation: A Friendly Fire on Economic Recovery

ECIPE Occasional Paper No. 03/2014

The Costs of Data Localisation:  A Friendly Fire on Economic Recovery cover

By Erik van der Marel, Hosuk Lee-Makiyama, Matthias Bauer, Bert Verschelde

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This paper aims to quantify the losses that result from data localisation requirements and related data privacy and security laws that discriminate against foreign suppliers of data, and downstream goods and services providers, using GTAP8. The study looks at the effects of recently proposed or enacted legislation in seven jurisdictions, namely Brazil, China, the European Union (EU), India, Indonesia, South Korea and Vietnam.

Access to foreign markets and globalised supply chains are the major sources of growth, jobs and new investments – in particular for developing economies. Manu- facturing and exports are also dependent on having access to a broad range of ser- vices at competitive prices, which depend on secure and efficient access to data. Data localisation potentially affects any business that uses the internet to produce, deliver, and receive payments for their work, or to pay their salaries and taxes.

The findings show that the negative impact of disrupting cross-border data flows should not be ignored. The globalised economy has made unilateral trade restric- tions a counterproductive strategy that puts the country at a relative loss to others, with no possibilities to mitigate the negative impact in the long run. Forced locali- sation is often the product of poor or one-sided economic analysis, with the sur- reptitious objective of keeping foreign competitors out. Any gains stemming from data localisation are too small to outweigh losses in terms of welfare and output in the general economy.

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