The Economic Costs of Restricting the Cross-Border Flow of Data



Daniela Chikova, Erik Peterson | European Centre for International Political Economy, Kearney Global Business Policy Council

Data is the lifeblood of the global economy—supporting everything from global supply chains and international production processes to e-commerce and the delivery of digital services.

The transatlantic economy depends on data, and proof of this is far and wide. Over the past 15 years, data has enabled trade in digital services between the United States and Europe to double. Data flows help consumers and companies take advantage of US-based digital services providers, including cloud services. More than half of EU companies rely on US-based social media platforms, such as Twitter, LinkedIn, or Facebook, to reach their customers or research consumer trends. More than half of European citizens use these platforms to connect with others. 

Ninety-eight percent of global multinational corporations (MNCs) and 83 percent of EU small and medium-size enterprises (SMEs) we surveyed say they have at least one business use for data.

With the surge in data comes a great responsibility to govern it. Rising concerns about data breaches and consumer privacy have led many countries to adopt data protection rules. The number and restrictiveness of these regulations have grown in tandem with the terabytes of data flowing through the global economy. And the rise of digital adoption as a result of the COVID-19 pandemic will boost emerging efforts to tighten regulations beyond national borders.

The impact of data regulations on the global flow of data cannot be underestimated. Our calculations show that a full ban on cross-border flows of personal data could result in a 31 percent decline in digital services imports from the United States to the European Union. As a result, the EU GDP could contract between 1.9 and 3.0 percent—€264 billion to €420 billion. This effect would persist due to lost trade, limited substitutability of select digital services, and lower company productivity.

Digging a little deeper, our research shows that all companies are affected by tighter data regulations, but SMEs are bearing the brunt of them. Many of these smaller businesses lack the legal and technical capabilities to manage data effectively. Because of costly data requirements, 30 percent of SMEs that use personal data when they trade abroad say they have reduced the amount of personal data that they transfer, process, and store outside the EU. Existing data rules have also forced some SMEs to discontinue selected operations or switch to less cost-effective services providers.

Enabling data to flow freely and support economic activity while also protecting and ensuring privacy is a tall order. Achieving this will require having a thorough understanding of the economic importance of data and the implications of restricting its flow. This is the gap that this study attempts to fill.

The economic costs of restricting the cross-border flow of data

To read the full report from the European Centre for International Political Economy and the Kearney Global Business Policy Council, please click here