Quantifying the impact of services liberalization in a developing country
The authors consider how service liberalization differs from goods liberalization in terms of welfare, the level and composition of output, and factor prices within a developing economy, in this case Tunisia. Despite recent movements toward liberalization, Tunisian service sectors remain largely closed to foreign participation and are provided at high cost relative to many developing nations. The authors develop a computable general equilibrium (CGE) model of the Tunisian economy with multiple products and services and three trading partners. They model goods liberalization as the unilateral removal of product tariffs. Restraints on services trade involve both restrictions on cross-border supply (mode 1 in the GATS) and on foreign ownership through foreign direct investment (mode 3 in the GATS). The former are modeled as tariff-equivalent price wedges while the latter are comprised of both monopoly-rent distortions (arising from imperfect competition among domestic producers) andinefficiency costs (arising from a failure of domestic service providers to adopt least-cost practices). They find that goods-trade liberalization yields a gain in aggregate welfare and reorients production toward sectors of benchmark comparative advantage. However, a reduction of services barriers in a way that permits greater competition through foreign direct investment generates larger welfare gains. Service liberalization also requires lower adjustment costs, measured in terms of sectoral movement of workers, than does goods-trade liberalization. And it tends to increase economic activity in all sectors and raise the real returns to both capital and labor. The overall welfare gains of comprehensive service liberalization amount to more than 5 percent of initial consumption. The bulk of these gains come from opening markets for finance, business services, and telecommunications. Because these are key inputs into all sectors of the economy, their liberalization cuts costs and drives large
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rutherford, Thomas F. & Tarr, David G., 2002. "Trade liberalization, product variety and growth in a small open economy: a quantitative assessment," Journal of International Economics, Elsevier, vol. 56(2), pages 247-272, March.
- Joseph Francois & Ian Wooton, 2000.
"Market Structure, Trade Liberalization and the GATS,"
Tinbergen Institute Discussion Papers
00-059/2, Tinbergen Institute.
- Francois, Joseph & Wooton, Ian, 2001. "Market structure, trade liberalization and the GATS," European Journal of Political Economy, Elsevier, vol. 17(2), pages 389-402, June.
- Francois, Joseph & Wooton, Ian, 2001. "Market Structure, Trade Liberalization, and the GATS," CEPR Discussion Papers 2669, C.E.P.R. Discussion Papers.
- Maskus, Keith E & Konan, Denise Eby, 1997. "Trade Liberalization in Egypt," Review of Development Economics, Wiley Blackwell, vol. 1(3), pages 275-93, October.
- Richard Harris, 1983.
"Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition,"
524, Queen's University, Department of Economics.
- Harris, Richard, 1984. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," American Economic Review, American Economic Association, vol. 74(5), pages 1016-32, December.
- Paul M. Romer, 1993.
"New Goods, Old Theory, and the Welfare Costs of Trade Restrictions,"
NBER Working Papers
4452, National Bureau of Economic Research, Inc.
- Romer, Paul, 1994. "New goods, old theory, and the welfare costs of trade restrictions," Journal of Development Economics, Elsevier, vol. 43(1), pages 5-38, February.
- B. Hoekman & S. Djankov, 1996.
"Catching Up With Eastern Europe? The European Union's Mediterranean Free Trade Initiative,"
9612, Economic Research Forum, revised Apr 1996.
- Djankov, Simeon & Hoekman, Bernard, 1995. "Catching Up With Eastern Europe? The European Union's Mediterranean Free Trade Initiative," CEPR Discussion Papers 1300, C.E.P.R. Discussion Papers.
- Hoekman, Bernard & Djankov, Simeon, 1996. "Catching up with Eastern Europe? The European Union's Mediterranean free trade initiative," Policy Research Working Paper Series 1562, The World Bank.
- Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685, June.
- 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.
- Brown, D.K. & Stern, R.M., 1999. "Measurement and Modeling of the Economic Effects of Trade and Investment Barriers in Services," Working Papers 453, Research Seminar in International Economics, University of Michigan.
- Drusilla K. Brown & Robert M. Stern, 2000. "Measurement and Modeling of the Economic Effects of Trade and Investment Barriers in Services," Discussion Papers Series, Department of Economics, Tufts University 0001, Department of Economics, Tufts University.
- James E. Anderson & Eric van Wincoop, 2001.
"Borders, Trade and Welfare,"
Boston College Working Papers in Economics
508, Boston College Department of Economics.
- Keith E. Maskus & Mohamed Lahouel, 2000. "Competition Policy and Intellectual Property Rights in Developing Countries," The World Economy, Wiley Blackwell, vol. 23(04), pages 595-611, 04.
- Deardoff, A.V. & Brown, D.K. & Stern, R.M. & Fox, A.K., 1995. "Computational Analysis of Goods and Services Liberalization in the Uruguay Round," Working Papers 379, Research Seminar in International Economics, University of Michigan.
- Philippa Dee & Kevin Hanslow, 2002. "Multilateral liberalisation of services trade," International Trade 0207002, EconWPA.
- Bernard Hoekman, 2000. "The next round of services negotiations: identifying priorities and options," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 31-52.
- Jaime de MELO & Sherman ROBINSON, 2015.
"Product Differentiation And The Treatment Of Foreign Trade In Computable General Equilibrium Models Of Small Economies,"
World Scientific Book Chapters,
in: Modeling Developing Countries' Policies in General Equilibrium, chapter 2, pages 21-41
World Scientific Publishing Co. Pte. Ltd..
- de Melo, Jaime & Robinson, Sherman, 1989. "Product differentiation and the treatment of foreign trade in computable general equilibrium models of small economies," Journal of International Economics, Elsevier, vol. 27(1-2), pages 47-67, August.
- Timothy J. Kehoe, 2003.
"An Evaluation of the Performance of Applied General Equilibrium Models of the Impact of NAFTA,"
Levine's Working Paper Archive
506439000000000525, David K. Levine.
- Timothy J. Kehoe, 2003. "An evaluation of the performance of applied general equilibrium models of the impact of NAFTA," Staff Report 320, Federal Reserve Bank of Minneapolis.
- Hoekman, Bernard, 1995.
"Tentative first steps : an assessment of the Uruguay Round agreement on services,"
Policy Research Working Paper Series
1455, The World Bank.
- Hoekman, Bernard, 1995. "Tentative First Steps: An Assessment of the Uruguay Round Agreement on Services," CEPR Discussion Papers 1150, C.E.P.R. Discussion Papers.
- James R. Markusen & Thomas F. Rutherford & David Tarr, 2000.
"Foreign Direct Investments in Services and the Domestic Market for Expertise,"
NBER Working Papers
7700, National Bureau of Economic Research, Inc.
- Markusen, James & Rutherford, Thomas F. & Tarr, David, 2000. "Foreign direct investment in services and the domestic market for expertise," Policy Research Working Paper Series 2413, The World Bank.
- Konan, Denise Eby & Maskus, Keith E., 2000.
"Joint trade liberalization and tax reform in a small open economy: the case of Egypt,"
Journal of Development Economics,
Elsevier, vol. 61(2), pages 365-392, April.
- Denise Eby Konan & Keith Maskus, 1997. "Joint Trade Liberalization and Tax Reform in a Small Open Economy: The Case of Egypt," Working Papers 199703-R, University of Hawaii at Manoa, Department of Economics.
- Sherman Robinson & Zhi Wang & Will Martin, 2002. "Capturing the Implications of Services Trade Liberalization," Economic Systems Research, Taylor & Francis Journals, vol. 14(1), pages 3-33.
- Thomas W. Hertel, 2000. "Potential gains from reducing trade barriers in manufacturing, services and agriculture," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 77-104.
- Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
When requesting a correction, please mention this item's handle: RePEc:eee:deveco:v:81:y:2006:i:1:p:142-162. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.