This paper explains how the economic costs of data localization and associated regulations on the free flow of data affect downstream economies in a group of emerging economies and the European Union. It analyzes observable regulatory barriers that explicitly inhibit the cross-border movement of data, which are currently being considered and implemented by various governments. It also calculates the costs of data regulations for domestic industries by establishing an empirical link between the regulation in data services and domestic downstream economic performance at the industry level. This methodology allows for the econometric analysis of the economic impact of data regulations. The regression analysis reveals that regulatory restrictions of the free flow of data tend to reduce productivity and economic output in those industries that depend relatively intensively on data services. Following this analysis, the paper presents an overview of recent developments in policies regarding data localization and associated data regulations for the group of countries studied. In addition, an overview of regulations on the free flow of data is provided for a number of countries that are not covered in the empirical part of this paper, but should be of concern in follow-up studies.

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The Global Commission on Internet Governance was established in January 2014 to articulate and advance a strategic vision for the future of Internet governance. The two-year project conducted and supported independent research on internet-related dimensions of global public policy, culminating in an official commission report that articulates concrete policy recommendations for the future of Internet governance.
  • Matthias Bauer is a senior economist at the European Centre for International Political Economy in Brussels, Belgium. He studied business administration at the University of Hull, United Kingdom, and economics at the Friedrich Schiller University Jena, Germany. 

  • Martina F. Ferracane is a policy analyst at the European Centre for International Political Economy. Her work focuses on EU sectoral policies, especially in the areas of international trade, health care and digital innovation. 

  • Erik van der Marel is a senior economist at the European Centre for International Political Economy. His research is concentrated on empirical analyses in services trade. He is currently carrying out research in digital trade and the cross-border flows of data, as well as developing a database that covers the regulatory cost factors of digital trade, including data transfers across borders.