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FTAA and Service Liberalization in Colombia

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  • Light Miles K.

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    Abstract

    In a previous study we found that accession to the FTAA could be welfareworsening for Colombia because exports to the USA will be diverted away from Colombia in favor of other Latin countries. In this paper we show that there remain potentially large gains from an FTAA-style agreement. These gains come from increased factor productivity and product variety as a result of service liberalization and foreign direct investment (FDI). These benefits are likely to be large enough to overcome the loss of competitiveness in US goods markets. We use a computable general equilibrium model of the Colombian economy that includes imperfect competition in order to highlight the pro-competitive effects from entry as well as productivity effects from increased product variety. In contrast to perfect competition models, such as the GTAP model, this analysis incorporates productivity effects in both goods and services markets endogenously, through a Dixit-Stiglitz framework. The numerical model is innovative as it recognizes that foreign direct investment or the availability of foreign expertise is necessary to have foreign firms compete in key business services; and it endogenously captures increases in total factor productivity from foreign direct investment liberalization.

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    File URL: http://economia.uniandes.edu.co/revistadys/53/05_FTAAandservice.pdf
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    Bibliographic Info

    Article provided by UNIVERSIDAD DE LOS ANDES-CEDE in its journal REVISTA DESARROLLO Y SOCIEDAD.

    Volume (Year): (2004)
    Issue (Month): ()
    Pages:

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    Handle: RePEc:col:000090:003870

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    Related research

    Keywords: Liberalization;

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    1. Harrison, Glenn W. & Rutherford, Thomas F. & Tarr, David G., 1997. "Economic implications for Turkey of a Customs Union with the European Union," European Economic Review, Elsevier, vol. 41(3-5), pages 861-870, April.
    2. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
    3. Brown, Drusilla K & Stern, Robert M, 2001. "Measurement and Modeling of the Economic Effects of Trade and Investment Barriers in Services," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 262-86, May.
    4. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    5. Rutherford, Thomas F. & Tarr, David G., 1998. "Trade liberalization and endogenous growth in a small open economy : a quantitative assessment," Policy Research Working Paper Series 1970, The World Bank.
    6. Joseph F. Francois, 1990. "Trade in Producer Services and Returns Due to Specialization under Monopolistic Competition," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 109-24, February.
    7. Rutherford, Thomas F, 1999. "Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: An Overview of the Modeling Framework and Syntax," Computational Economics, Society for Computational Economics, vol. 14(1-2), pages 1-46, October.
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    Cited by:
    1. Gustavo HERNÁNDEZ, 2013. "Una reseña de los efectos del Tratado de Libre Comercio entre Colombia y Estados Unidos," ARCHIVOS DE ECONOMÍA 011204, DEPARTAMENTO NACIONAL DE PLANEACIÓN.

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