Do Data Policy Restrictions Impact the Productivity Performance of Firms and Industries?

Abstract

This paper examines how policies regulating the cross-border movement and domestic use of electronic data on the internet impact the productivity of firms in sectors relying on electronic data. In doing so, we collect regulatory information on a group of developed economies and create an index that measures the regulatory restrictiveness of each country's data policies. The index is based on observable policy measures that explicitly inhibit the cross-border movement and domestic use of data. Using crosscountry firm-level and industry-level data, we analyse econometrically the extent to which these data regulations over time impact the productivity performance of downstream firms and industries respectively. We show that stricter data policies have a negative and significant impact on the performance of downstream firms in sectors reliant on electronic data. This adverse effect is stronger for countries with strong technology networks, for servicified firms, and holds for several robustness checks.

Digital Innovation in East Asia: Do Restrictive Data Policies Matter

“…Van der Marel et al (2016) and Ferracane et al (2018b) are the only two studies that explore how regulatory policies related to data affect productivity. The authors analyze this linkage econometrically by setting up a regulatory restrictiveness index for the cross-border and domestic use of data from Ferracane et al (2018a) and extending this index over time. The authors calculate the costs associated with restrictive data policies by regressing firm-level productivity on a composite indicator which measures the extent to which restrictive data regulations affect industries relying on data using software as a proxy.…”

“…The authors make clear that an expanded innovative AI industry in which data flows are an important factor would be distorted by restrictive data policies such as data localization. This paper combines the two strands of the literature by developing a specific yet expanded data policy restrictiveness index based on Ferracane et al (2018a). It then relates the index to firms' digital innovation activities for a set of East Asian countries for which we specifically have developed the data policy index.…”

“…This section sets out the empirical strategy. We develop a composite indicator following the works of Ferracane et al (2018a) and Ferracane and van der Marel (2018). In these two works, a data linkage variable is developed that interacts their data policy index with an industry-level measure of dataintensity.…”

“…2 An alternative way of measuring intensities such as the one used in Arnold et al (2011;2015) and Bourlès et al (2013) is to create an indicator of dependency using input-output matrixes, which we have also done in Ferracane et al (2018a) and Ferracane and van der Marel (2018). We use this information as well in our paper for the country-specific case studies.…”

“…For the purpose of this research, we have constructed an index that measures the extent to which 15 East Asian countries are restricted regarding data policies. This restrictiveness index builds on previous work from Ferracane et al (2018a;2018b), but is expanded with new policies, such as those related to Intellectual Property Rights (IPR), that are expected to affect more generally digital innovation. The first step of this paper is to describe and analyze the developments of data restrictiveness for the 15 countries in the region for which we have collected policy developments.…”