The Political Economy of Data: EU Privacy Regulation and the International Redistribution of Its Costs

Abstract

In the wide-ranging policy debate on data privacy, the economic impact of regulation has thus far received very little attention. Yet data privacy legislation has the potential to affect different groups and countries asymmetrically, leading to important redistributive effects. This paper aims to illustrate the economic impact of data regulation, using the EU’s General Data Protection Regulation (GDPR) as an example, and using econometric methods (GTAP) commonly used in trade economics. GDPR introduces restrictions on cross-border trade flows, which affects input prices to the service industry, and in turn, EU exports, with a direct welfare effects on the EU is a loss of up to € 260 per European citizen. The findings of this study have important implications for the discussions around policy design and regulatory efficiency. The severe economic impact of the GDPR proposal demonstrates that data connectivity and economic interdependency effectively limit the policy space for non-economic regulation. Moreover, this paper shows that mercantilist data restrictions are counterproductive and affect the protecting market more than those who are restricted in accessing it.