Modeling services liberalization : the case of Kenya Balistreri, Edward J.; Rutherford, Thomas F.; Tarr, David G.

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Balistreri, Edward J. ; Rutherford, Thomas F. ; Tarr, David G.
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Economic Modelling
Foreign investments -- Analysis; Foreign investments -- Models; Industrial productivity -- Analysis
To link to full-text access for this article, visit this link: Byline: Edward J. Balistreri (a), Thomas F. Rutherford (b), David G. Tarr (c) Keywords: Services; Foreign direct investment; Endogenous productivity effects; Computable general; Equilibrium modeling; Kenya Abstract: This paper employs a 55 sector small open economy computable general equilibrium model of the Kenyan economy to assess the impact of the liberalization of regulatory barriers against foreign and domestic business service providers in Kenya. The model incorporates foreign direct investment in business services and productivity effects in imperfectly competitive goods and services markets endogenously, through a Dixit-Stiglitz framework. The ad valorem equivalent of barriers to foreign direct investment have been estimated based on detailed questionnaires completed by specialists in Kenya. We estimate very substantial gains to Kenya from regulatory liberalization in business services, and additional gains from uniform tariffs. The estimated gains increase to 50% of consumption in the long run steady state model, where the impact on the accumulation of capital from an improvement in the productivity of capital is taken into account. Decomposition exercises reveal that the largest gains to Kenya will derive from liberalization of costly regulatory barriers that are non-discriminatory in their impacts between Kenyan and multinational service providers. Author Affiliation: (a) Colorado School of Mines, United States (b) Swiss Federal Institute of Technology (ETH-Zurich), Switzerland (c) The World Bank, United States Article History: Accepted 16 January 2009 Article Note: (footnote) [star] We thank Bobbie Mircheva and Sonya Sejpal for help with the data and estimates of parameters in this paper and Maria Kasilag for help with the logistics. We thank James Njeru of the Communications Commission of Kenya and Samuel Helu of the Kenya Ports Authority for extensive discussions and comments. We thank Dominique Njenku and the seminar participants at the "Trade in Services" conference in Nairobi, Kenya on March 26, 27, 2007 for many insights. Financial support from the Bank-Netherlands Partnership Program under the Services in Africa project is gratefully acknowledged. The views expressed are those of the authors and do not necessarily reflect those of the World Bank, its Executive Directors or those cited.
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