Introduction and Key Tables from: Services Liberalization in Preferential Trade Arrangements: The Case of Kenya

Despite the fact that many modern preferential trade agreements include commitments to foreign investors in services, the literature does not contain a modeling framework to analyze these commitments. In this paper we fill that void by developing a computable general equilibrium model of Kenya with monopolistic competition, foreign direct investment in services and Dixit-Stiglitz endogenous productivity effects. We use this model to assess preferential commitments by Kenya to foreign services providers. We show that there is an imperfect competition analogy to trade diversion in goods, whereby preferential commitments in services could be immizerising. Sensitivity analysis shows that losses are more likely the more technologically advanced are the excluded regions relative to the partner region, and, very importantly, the greater the rent capture on initial barriers in services. So an agreement with the technologically rich European Union is both worth more to Kenya and is more likely to be welfare increasing than an agreement with its less technologically rich African partners. From our systematic sensitivity analysis, in which the model is executed 30,000 times, and results are reported as confidence intervals of the sample distributions, we find that there is only a two percent chance that a services agreement with the Africa region would be immizerising for Kenya, but an agreement with the EU should produce gains with probability one.