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The Welfare Implications of Services Liberalization in a Developing Country

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  • Jouini, Nizar
  • Rebei, Nooman

Abstract

Evaluating the impact of services liberalization is challenging. In particular, services trade barriers are often non-observed and the evaluation of their impact is not trivial. Most papers in the literature adopt a two-step methodology consisting of separately evaluating non-tariff barriers and then, the impact of their abolition. A straightforward drawback of this literature is the inconsistency between the routines used in the two different steps. To solve this inconsistency issue, we propose to use an integrated method based on a two-sector small open economy dynamic and stochastic general equilibrium model to estimate non-tariff barriers and quantify the impact of services liberalization. The major component of trade barriers is explicitly modeled through the introduction of entry-sunk costs to the service sector. Hence, liberalization is treated assuming a government’s policy decision aimed at reducing those costs. Then, we estimate the model using Bayesian techniques for Tunisia and the Euro Area. The paper presents a precise quantitative evaluation of services trade barriers as the difference between entry-sunk costs in Tunisia versus the Euro Area. We find significant welfare benefits in addition to aggregate and sectoral growth gains the Tunisian economy could attain following services liberalization. Surprisingly, the goods sector is the one that benefits the most from services liberalization.

Suggested Citation

  • Jouini, Nizar & Rebei, Nooman, 2012. "The Welfare Implications of Services Liberalization in a Developing Country," Conference papers 332271, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332271
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