Foreign direct investment (FDI) in services is often more important to Supply foreign markets than cross-border trade. A complete analysis of services liberalization therefore requires the modelling of FDI. This paper presents the treatment of FDI in our CGE model WorldScan based on the ideas of Petri [Petri, P.A., 1997. Foreign direct investment in a computable general equilibrium framework. Paper Prepared for the Conference, Making APEC work: Economic Challenges and Policy Alternatives, March 13-14. Keio University, Tokyo] and Markusen [Markusen, J.R., 2002. Multinational Finns and The Theory of International Trade. MIT Press] that firms which establish affiliates abroad also transfer firm-specific knowledge. Consequently, capital owned by Suppliers from home and foreign Countries are not perfect Substitutes. We apply this model to the proposals of the European Commission to open up services markets. Even when FDI in services could increase by 20% to 35%, the overall economic impact is limited. Our assessment suggests that GDP in the EU25 Could increase up to 0.4%. These effects could be LIP to 0.8% higher if foreign capital also increases the overall productivity of the services sector. (C) 2008 Elsevier B.V. All rights reserved.
|Number of pages||18|
|Publication status||Published - Sep 2008|
|Event||Workshop on Trade in Services 2006 - Brussels, Belgium|
Duration: 1 Jan 2006 → …
- CGE models
- trade in services
- economic integration