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Opening services markets within Europe; modelling foreign establishments in a CGE framework

Author

Listed:
  • Arjan Lejour

    () (CPB Netherlands Bureau for Economic Policy Analysis)

  • Hugo Rojas-Romagosa

    () (CPB Netherlands Bureau for Economic Policy Analysis)

  • Verweij. G.

Abstract

In services, the activities of foreign affiliates often exceed the value of cross-border trade. A complete analysis of services liberalisation therefore requires the modelling of FDI. This paper presents the treatment of FDI in our CGE model WorldScan based on the ideas of Petri (1997) and Markusen (2002). They assume that firms establishing affiliates abroad also transfer firm-specific knowledge. Consequently, capital and products differ from existing capital and products in the host country. As an illustration, we apply this model to assess the proposals of the European Commission to open up services markets. FDI in services could increase by 20% to 35%. However, the overall economic impact is limited. Our assessment suggests that GDP in the EU25 could increase up to 0.4%. These effects could be up to 0.8% higher if foreign capital also increases the overall productivity of the services sector.

Suggested Citation

  • Arjan Lejour & Hugo Rojas-Romagosa & Verweij. G., 2007. "Opening services markets within Europe; modelling foreign establishments in a CGE framework," CPB Discussion Paper 80, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:discus:80
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    References listed on IDEAS

    as
    1. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078.
    2. 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 262-286, May.
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    17. Henk Kox & Arjan Lejour, 2006. "The Effects of the Services Directive on Intra-eu Trade and fdi," Revue économique, Presses de Sciences-Po, vol. 57(4), pages 747-769.
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    Citations

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    Cited by:

    1. Joseph Francois & Bernard Hoekman, 2010. "Services Trade and Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 642-692, September.
    2. Lakatos, Csilla & Walmsley, Terrie, 2012. "Investment creation and diversion effects of the ASEAN–China free trade agreement," Economic Modelling, Elsevier, vol. 29(3), pages 766-779.
    3. Arjan Lejour & Hugo Rojas-Romagosa, 2006. "Foreign Direct Investment in Applied General Equilibrium Models: Overview of the Literature," CPB Memorandum 169, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Tarr, David G., 2013. "Putting Services and Foreign Direct Investment with Endogenous Productivity Effects in Computable General Equilibrium Models," Handbook of Computable General Equilibrium Modeling, Elsevier.
    5. Christophe Gouel & Houssein Guimbard & David Laborde, 2012. "A Foreign Direct Investment database for global CGE models," Working Papers 2012-08, CEPII research center.
    6. Christen, Elisabeth & Francois, Joseph & Hoekman, Bernard, 2012. "CGE modeling of market access in services," Policy Research Working Paper Series 6106, The World Bank.
    7. Jin, Wei, 2015. "Can China harness globalization to reap domestic carbon savings? Modeling international technology diffusion in a multi-region framework," China Economic Review, Elsevier, vol. 34(C), pages 64-82.
    8. Lakatos, Csilla & Fukui, Tani, 2014. "The Liberalization of Retail Services in India," World Development, Elsevier, vol. 59(C), pages 327-340.
    9. Ziliang Deng & Rod Falvey & Adam Blake, 2013. "Quantifying Foreign Direct Investment Productivity Spillovers in China: A Computable General Equilibrium Model," Asian Economic Journal, East Asian Economic Association, vol. 27(4), pages 369-389, December.
    10. Jin, Wei, 2016. "International technology diffusion, multilateral R&D coordination, and global climate mitigation," Technological Forecasting and Social Change, Elsevier, vol. 102(C), pages 357-372.
    11. Christen, Elisabeth & Francois, Joseph & Hoekman, Bernard, 2013. "Computable General Equilibrium Modeling of Market Access in Services," Handbook of Computable General Equilibrium Modeling, Elsevier.
    12. Maryla Maliszewska & Irina Orlova & Svitlana Taran, 2009. "Deep Integration with the EU and its Likely Impact on Selected ENP Countries and Russia," CASE Network Reports 0088, CASE-Center for Social and Economic Research.
    13. Pelkmans, Jacques & Lejour, Arjan & Schrefler, Lorna & Mustilli, Federica & Timini, Jacopo, 2014. "The Impact of TTIP: The underlying economic model and comparisons," CEPS Papers 9710, Centre for European Policy Studies.
    14. repec:eee:ecmode:v:67:y:2017:i:c:p:409-420 is not listed on IDEAS
    15. Anwar, Sajid, 2009. "Sector specific foreign investment, labour inflow, economies of scale and welfare," Economic Modelling, Elsevier, vol. 26(3), pages 626-630, May.
    16. Deng, Ziliang & Falvey, Rod & Blake, Adam, 2012. "Trading market access for technology? Tax incentives, foreign direct investment and productivity spillovers in China," Journal of Policy Modeling, Elsevier, vol. 34(5), pages 675-690.
    17. Paul de Boer & Richard Paap, 2009. "Testing non-nested demand relations: linear expenditure system versus indirect addilog," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 63(3), pages 368-384.
    18. Wei Jin, 2012. "International Knowledge Spillover and Technology Externality: Why Multilateral R&D Coordination Matters for Global Climate Governance," CAMA Working Papers 2012-53, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    19. Ziliang Deng & Adam Blake & Rod Falvey, "undated". "Quantifying Foreign Direct Investment Productivity Spillovers: A Computable General Equilibrium Framework for China," Discussion Papers 09/18, University of Nottingham, GEP.
    20. Wei Jin, 2012. "Can China Harness Globalization to Reap Carbon Savings? Modeling International Technology Diffusion in a Multi-region Framework," CAMA Working Papers 2012-52, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F15 - International Economics - - Trade - - - Economic Integration

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