FDI in Services: How Data Provisions Are Shaping the New Global Economy

Abstract

Coinciding with a process of slowbalization in goods, cross-border flows of services have experienced a sharp increase, with FDI through commercial presence emerging as the dominant mode of international services supply. At the same time, a growing number of trade agreements have incorporated binding data-related provisions aimed at regulating cross-border data flows and data protection. This paper investigates the impact of such provisions on bilateral foreign affiliates in services, with a focus on data-intensive services, using a structural gravity model. Our results reveal that the presence of data provisions in trade agreements does not uniformly promote foreign affiliates in services. Trade agreements with deeper commitments on data-related provisions are associated with a greater number of foreign affiliates in the services sector, particularly when there is regulatory divergence on data governance between partner countries. Conversely, in the case of information services—a highly data-intensive sector—these provisions appear to enhance remote service delivery, thereby reducing the incentives for FDI, especially when countries have divergent data regulatory models. These results highlight how countries' data regulatory contexts and sectoral characteristics condition the effects of data-related provisions in trade agreements on FDI.