Discussion Paper

No. 2015-47 | July 01, 2015
What Determines whether Preferential Liberalization of Barriers against Foreign Investors in Services Are Beneficial or Immizerising: Application to the Case of Kenya

Abstract

Despite the fact that many modern preferential trade agreements include commitments to foreign investors in imperfectly competitive services sectors, the literature has not established conditions under which these agreements are beneficial or harmful. The authors fill that void by developing a model with monopolistic competition and foreign direct investment in services with Dixit-Stiglitz endogenous productivity effects from additional varieties. They specify a numerical model, with probability distributions of all parameters. The model is executed 30,000 times, and results are reported as probability of an outcome, based on the sample distribution. In order to ground the results in reality, the authors apply the model to Kenya. They show that preferential commitments in services could be immizerising. Losses are more likely the greater the share of initial rent capture on the services barriers in our home country and the more technologically advanced are the excluded regions relative to the partner region.

JEL Classification:

F12, F13, F14, F15, F23, F47, C68, L16

Assessment

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Cite As

Edward J. Balistreri, Jesper Jensen, and David Tarr (2015). What Determines whether Preferential Liberalization of Barriers against Foreign Investors in Services Are Beneficial or Immizerising: Application to the Case of Kenya. Economics Discussion Papers, No 2015-47, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2015-47


Comments and Questions


Anonymous - Referee Report 1
July 09, 2015 - 09:40

see attached file


David Tarr - answering the queries of the referee
July 21, 2015 - 17:45

Please see the attached file.


Anonymous - Referee Report 2
September 01, 2015 - 08:22

see attached file


David Tarr - Respondng to the queries of the second referee
September 08, 2015 - 16:42

See attached pdf file.