What Gains from Liberalisation of Trade in Service: Lessons from Modelling and Political Economy

Mardi | 2009-11-24

Thierry MONTALIEU – Isabelle RABAUD – Thierry BAUDASSE

Theoretically, welfare gains from liberalisation of trade in services arise from falling pricesand technology transfers from foreign firms. Empirically, substantial gains are only reachedwhen entry of foreign firms is widened. These results rest upon three strong assumptions.First, substitution elasticities need to be important, which is not the case empirically foraggregated service data. Second, information is required on the breakdown of the initial pricewedgebetween rent and inefficient technology. Third, wage differences do not reflect onlyproductivity gaps. This paper argues that, such strong hypotheses tend to over-estimate thegains expected from liberalising trade in services. Design of reforms and economic policyconsiderations matter too, including not only timing and sequencing issues but also the tradeoffbetween regional arrangements and multilateral agreements.