Opening services markets within Europe

Modelling foreign establishments in a CGE framework

Arjan Lejour*, Hugo Rojas-Romagosa, Gerard Verweij

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

Abstract

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.

Original languageEnglish
Pages (from-to)1022-1039
Number of pages18
JournalEconomic Modelling
Volume25
Issue number5
DOIs
Publication statusPublished - Sep 2008
Externally publishedYes
EventWorkshop on Trade in Services 2006 - Brussels, Belgium
Duration: 1 Jan 2006 → …

Keywords

  • FDI
  • CGE models
  • trade in services
  • economic integration

Cite this

Lejour, Arjan ; Rojas-Romagosa, Hugo ; Verweij, Gerard. / Opening services markets within Europe : Modelling foreign establishments in a CGE framework. In: Economic Modelling. 2008 ; Vol. 25, No. 5. pp. 1022-1039.
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title = "Opening services markets within Europe: Modelling foreign establishments in a CGE framework",
abstract = "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.",
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Opening services markets within Europe : Modelling foreign establishments in a CGE framework. / Lejour, Arjan; Rojas-Romagosa, Hugo; Verweij, Gerard.

In: Economic Modelling, Vol. 25, No. 5, 09.2008, p. 1022-1039.

Research output: Contribution to journalArticleScientificpeer-review

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T2 - Modelling foreign establishments in a CGE framework

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AU - Verweij, Gerard

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AB - 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.

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