The Costs of Data Localisation: A Friendly Fire on Economic Recovery
ECIPE Occasional Paper No. 03/2014
By Erik van der Marel, Hosuk Lee-Makiyama, Matthias Bauer, Bert Verschelde
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 impact of recently proposed or enacted legislation on GDP is substantial in all seven countries: Brazil (-0.2%), China (-1.1%), EU (-0.4%), India (-0.1%), Indone- sia (-0.5%), Korea (-0.4%) and Vietnam (-1.7%). These changes significantly affect post-crisis economic recovery and can undo the productivity increases from major trade agreements, while economic growth is often instrumental to social stability.
- If these countries would also introduce economy-wide data localisation require- ments that apply across all sectors of the economy, GDP losses would be even high- er: Brazil (-0.8%), the EU (-1.1%), India (-0.8%), Indonesia (-0.7%), Korea (-1.1%).
- The impact on overall domestic investments is also considerable: Brazil (-4.2%), China (-1.8%), the EU (-3.9%), India (-1.4%), Indonesia (-2.3%), Korea (-0.5%) and Vietnam (-3.1). Exports of China and Indonesia also decrease by -1.7% as a conse- quence of direct loss of competitiveness.
- Welfare losses (expressed as actual economic losses by the citizens) amount to up to $63 bn for China and $193 bn for the EU. For India, the loss per worker is equivalent to 11% of the average month salary, and almost 13 percent in China and around 20% in Korea and Brazil.
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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