Opening Services Markets within Europe: Modelling Foreign Establishments in a CGE Framework

Arjan Lejour (), Hugo Rojas-Romagosa () and Gerard Verweij ()

CPB Discussion Papers from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: In services, the activities of foreign affiliates often exceed the value of cross-border trade. A complete analysis of services liberalisation therefore requires the modelling of FDI. This paper presents the treatment of FDI in our CGE model WorldScan based on the ideas of Petri (1997) and Markusen (2002). They assume that firms establishing affiliates abroad also transfer firmspecific knowledge. Consequently, capital and products differ from existing capital and products in the host country. As an illustration, we apply this model to assess the proposals of the European Commission to open up services markets. FDI in services could increase by 20% to 35%. However, the overall economic impact is limited. Our assessment suggests that GDP in the EU25 could increase up to 0.4%. These effects could be up to 0.8% higher if foreign capital also increases the overall productivity of the services sector.

Keywords: FDI; CGE models; trade in services; economic integration (search for similar items in EconPapers)
JEL-codes: F23 C68 F15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-knm
Date: 2007-03
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Journal Article: Opening services markets within Europe: Modelling foreign establishments in a CGE framework (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:cpb:discus:80

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