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The Division and Size of Gains from Liberalization in Service Networks

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  • Keshab Bhattarai
  • John Whalley

Abstract

If two disjoint country service networks involving a small and large country are connected as part of international liberalization in the presence of network externalities, the per capita gain for the small country from access to a large network will be large, and the per capita gain for the large country will be small. In contrast to goods, the benefits of liberalization in network-related services are more likely to be approximately equally divided between large and small countries than is true of trade in goods, where benefits accrue disproportionately to the small country. We also argue that non-cooperation in network-related services trade may involve more extreme retaliation than suggested for trade in goods by the optimal tariff literature, so that relative to a non-cooperative outcome, gains from liberalization in network-related services become larger than from liberalization in goods. We develop simple models which we use for numerical examples showing these points, along with an empirical implementation for global telecoms liberalization for the US, Europe, Canada, and the rest of the world using the framework developed in the paper. This shows similar proportional gains to regions, consistent with the theme of the paper that goods and services liberalization differ. Copyright � 2006 The Authors; Journal compilation � 2006 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 14 (2006)
Issue (Month): 3 (08)
Pages: 348-361

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Handle: RePEc:bla:reviec:v:14:y:2006:i:3:p:348-361

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References

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  1. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(4), pages 822-41, August.
  2. Nicholas Economides, 1997. "The Economics of Networks," Industrial Organization, EconWPA 9701002, EconWPA.
  3. Nicholas Economides, 1997. "Network Externalities, Complementarities, and Invitations to Enter," Industrial Organization, EconWPA 9701004, EconWPA.
  4. S. J. Liebowitz & Stephen E. Margolis, 1994. "Network Externality: An Uncommon Tragedy," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 8(2), pages 133-150, Spring.
  5. Choi, Jay Pil, 1994. "Network Externality, Compatibility Choice, and Planned Obsolescence," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 42(2), pages 167-82, June.
  6. Melvin, James R, 1989. "Trade in Producer Services: A Heckscher-Ohlin Approach," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(5), pages 1180-96, October.
  7. repec:fth:coluec:564 is not listed on IDEAS
  8. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, American Economic Association, vol. 75(3), pages 424-40, June.
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Cited by:
  1. John Whalley, 2008. "Globalisation and Values," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 31(11), pages 1503-1524, November.
  2. Ajitava Raychaudhuri & Prabir De, 2007. "Assessing Barriers to Trade in Education Services in Developing Asia - Pacific Countries:An Empirical Exercise," Working Papers, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada. 3407, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
  3. John Whalley, 2003. "Assessing the Benefits to Developing Countries of Liberalization in Services Trade," NBER Working Papers 10181, National Bureau of Economic Research, Inc.
  4. Manish Pandey & John Whalley, 2004. "Social Networks and Trade Liberalization," NBER Working Papers 10769, National Bureau of Economic Research, Inc.
  5. Bhattarai K., 2001. "Welfare Gains to UK from a Global Free Trade," European Research Studies Journal, European Research Studies Journal, European Research Studies Journal, vol. 0(3-4), pages 55-72, July - De.
  6. John Whalley, 2003. "Liberalization in China's Key Service Sectors Following WTO Accession: Some Scenarios and Issues of Measurement," NBER Working Papers 10143, National Bureau of Economic Research, Inc.

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