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Quantifying the Impact of Services Liberalization in a Developing Country

SERVICES GOODS TRADE LIBERALIZATION WELFARE ECONOMICS OUTPUTS FACTOR PRICES DEVELOPING COUNTRIES TARIFFS FOREIGN DIRECT INVESTMENTS MONOPOLISTIC COMPETITION COMPETITIVENESS DOMESTIC TRADE AGGREGATE VARIABILITY DEREGULATION ECONOMIC DEVELOPMENT ACCOUNTING ACCOUNTING PRACTICES ACTUAL COSTS AGGREGATE IMPORT EXPENDITURES AGGREGATE TRADE AGGREGATE TRADE FLOWS AGREEMENT ON TRADE AGRICULTURE BALANCE OF PAYMENTS BANKING SYSTEM BENCHMARK BENCHMARK DATA BENCHMARK EQUILIBRIUM BENCHMARK TRADE ELASTICITIES BENCHMARKS BORDER TRADE CAPITAL ACCOUNT CAPITAL GAINS CAPITAL INCREASE CAPITAL INPUTS CAPITAL STOCK CAPITAL SUBSTITUTION CARTEL CARTELS CD CHANGES IN TRADE COMPARATIVE ADVANTAGE COMPETITIVE MARKET COMPETITIVE MARKETS COMPETITIVENESS CONSTANT ELASTICITY OF SUBSTITUTION CONSTANT ELASTICITY OF TRANSFORMATION CONSTANT RETURNS TO SCALE CONSUMER PRICE INDEX CONSUMER PRICES CONSUMERS COUNTRY OF ORIGIN CURRENT ACCOUNT CURRENT ACCOUNT BALANCE CURRENT ENVIRONMENT CUSTOMS PROCEDURES DEREGULATION DOMESTIC PRODUCERS DOMESTIC SUPPLIERS ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC EFFICIENCY ECONOMIC GROWTH ECONOMIC RENTS ECONOMICS ECONOMIES OF SCALE ECONOMISTS ELASTICITIES ELASTICITY OF SUBSTITUTION EMPIRICAL EVIDENCE EMPIRICAL INFORMATION EMPIRICAL STUDIES EQUILIBRIUM EQUIVALENT VARIATION EXCHANGE RATE EXPORT INDUSTRIES EXPORT SECTORS EXPORT TRADE EXPORT VOLUMES EXPORTS FACTOR DEMAND FINAL GOODS FINANCIAL SECTOR FINANCIAL SERVICES FOREIGN DIRECT INVESTMENT FOREIGN ENTRY FOREIGN FIRMS FOREIGN INVESTMENT FOREIGN MARKETS FOREIGN OWNERSHIP FOREIGN SALES FOREIGN SUPPLIERS FREE GOODS FRICTIONAL UNEMPLOYMENT FULL LIBERALIZATION GDP GENERAL EQUILIBRIUM MODEL GLOBAL INTEGRATION GOVERNMENT EXPENDITURES GRAVITY MODEL IMPERFECT COMPETITION IMPORT CONSUMPTION IMPORT PRICES IMPORTS INCOME INCOME ELASTICITIES INEFFICIENCY INSURANCE INTEREST RATE INTERMEDIATE IMPORTS INTERMEDIATE INPUTS INTERNATIONAL PRICES INTERNATIONAL STANDARDS INTERNATIONAL TRADE INVESTMENT FLOWS INVESTMENT LIBERALIZATION LABOR FORCE LAWS LIBERALIZATION OF TRADE LIBERALIZATION OF TRADE IN GOODS LOST TARIFF REVENUES MARGINAL COST MARGINAL COST CONDITION MARGINAL COSTS MARKET POWER MARKET STRUCTURE POLICY RESEARCH PREFERENTIAL TREATMENT PRICE ELASTICITY PRICE ELASTICITY OF DEMAND PRICE INCREASES PRIMARY FACTORS PRIVATIZATION PRODUCERS PRODUCT DIFFERENTIATION PRODUCTION FUNCTION PRODUCTION FUNCTIONS PRODUCTIVITY PUBLIC SERVICES REAL EXCHANGE RATE REAL INCOME REAL PRICES REGIONAL TRADE RETURN ON CAPITAL SAVINGS SERVICE DELIVERY SPECIALIZATION SUBSIDIARIES TARIFF CLASSIFICATION TARIFF DATA TARIFF RATES TAX RATES TAX REVENUES TELECOMMUNICATIONS TOTAL OUTPUT TRADE AGREEMENT TRADE BALANCE TRADE COSTS TRADE LIBERALIZATION TRADE PATTERNS TRADE REFORM TRADE REFORMS TRANSPORT UNEMPLOYMENT UNILATERAL TRADE UNILATERAL TRADE LIBERALIZATION UTILITY FUNCTION VALUE ADDED WAGES WELFARE GAINS WELFARE IMPACTS WORLD TRADE WORLD TRADE ORGANIZATION
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World Bank, Washington, DC
Middle East and North Africa | Tunisia
2014-03-27T19:43:54Z | 2014-03-27T19:43:54Z | 2004-01

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) and inefficiency 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 larger efficiency gains overall. The results point to the potential importance of deregulating services provision for economic development.

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