WTO Financial Services Commitments: Determinants and Impact on Financial Stability

The Determinants of GATS Commitment Coverage

“…Membership in a coalition group, unionisation, financial development and foreign presence are found to be the main determinants for liberal GATS commitments in the financial sector. Valckx (2004) extends the analysis of Harms et al (2003) with respect to the impact of commitments in the financial sector on financial crisis. He finds several macroeconomic variables to have some explanatory power for liberal commitments in the financial sector.…”

WTO financial services commitments: Determinants and impact on financial stability

“…In Fig. 1, the change in financial sector openness (proxied by the value of financial services exports and imports as a percent of GDP) is depicted for low-and high-commitment countries (as given in Valckx, 2002a) over the period 1995 -1999 versus 1990-1994. As can be seen, the increase is pronounced in high-commitment countries, but less so in low-commitment countries.…”

“…The changes compare the period average for 1995 -1999 and 1990 -1994. actual policy choices and therefore have an impact on stability. To illustrate this effect, and using the quantification of commitments from Valckx (2002a), Table 1 displays the correlations between liberalization commitments and actual policy choices as captured by indicators of economic freedom from Heritage Foundation/Wall Street Journal. The indicators of economic freedom are scaled from 1 to 5, with 5 being most restrictive.…”

“…Within these two sets, crisis situations are defined in a narrow and a broad way. See Valckx (2002a) for a list of countries subject to currency and banking crises.…”

“…Research to date has suggested a number of explanations for these crises: unfavorable macroeconomic conditions, unsustainable or inconsistent monetary, fiscal or industrial policy, unsound banking practices or weak supervision, short-term capital flows, speculation and contagion (see Dornbush, 2001;Berg et al, 1999;Evans et al, 2000 for recent surveys). At the same time, there has been a secular trend toward capital account liberalization and capital account convertibility (Eichengreen et al, 1998), and extensive negotiations to liberalize trade in financial services have taken place (see Valckx, 2002a, Box 1, for a brief historical overview, and Kireyev, 2002a, for a detailed analysis of the WTO rules). A major achievement in the latter respect has been the General Agreement on Trade in Services (GATS) under the aegis of the World Trade Organization (WTO).…”