Notwithstanding the worldwide trend towards liberalization since the early 1990s, there remain substantial disparities between regions and individual countries in the severity of observable restrictions on inward foreign direct investment (FDI) in services.

This study quantifies and analyses such restrictions in the service sector of 50 developing countries and economies in transition, using a methodology previously only used for OECD countries.

The study is confined to measuring restrictions discriminating between foreign and domestic investors and does not take into account policies impinging on all investors, such as product or labour market regulations. Several different types of restrictions are considered:

• Limitations on foreign ownership
• Screening or notification procedures
• Management restrictions
• Operational restrictions

These restrictions on FDI are computed for a large number of services industries and aggregated into a single measure for the services sector as a whole in each country. The results should be interpreted carefully in the light of the frequent changes to, and complex nature of, national policies on FDI, which render classification and quantification challenging.

The study finds that the GATS schedules by themselves are poor guides to the stance of policies towards FDI for most countries and generally underestimate the extent to which countries have opened up their service industries to FDI. It provides a heretofore unavailable systematic and internationally-comparable set of indicators for policies on FDI in services that will be of value to policymakers concerned with international negotiations on FDI and researchers studying FDI.

Moreover, the analysis suggests that Latin America and economies in transition generally have relatively low levels of restrictions, whereas higher levels of restrictions are found in East Asia and the Middle East. Inward FDI in services is strongly negatively correlated with the severity of restrictions.