The Impact of Liberalizing Barriers to Foreign Direct Investment în Services

Jensen, J., Rutherford, T., Tarr, D. (2006). The Impact of Liberalizing Barriers to Foreign

Direct Investment in Services: The Case of Russian Accession to the World Trade Organization

The purpose of the article was to determine the impact of Russian access to the World Trade

Organization through tariff reduction, enhanced market entry and liberalized foreign direct investment.

The authors of the article present a general equilibrium model using the Dixit-Stiglitz concept of

productivity effects for the market of goods and services. The estimations were based on specialized

Russian research institutes. Thus they revealed that the reduction of barriers to multinational

companies would bring the major part of the terms of trade. The authors also estimated the gains

owing to World Trade Organization to have a percentage of 7.2 in the medium-run and up to 24 % in

the long-run.

The paper is based on the assumption that any business service sector, domestic or foreign,

uses in a large share of domestic labor or capital. Russia gains from World Trade Organization

accession if it entered to the markets of non-CIS countries selling differentiated products, if reduces

the tariff on goods to obtain a better resources allocation thus increasing the variety of imported goods.

As I said previously, the largest share of the gains can be attained if the government reduces the

barriers against multinational service providers, which will definitely increase the variety of services,

lowering the quality adjusted costs. The liberalization of trade will also increase the capital stock,

leading to a higher rate of return to capital due to the transfer of rents to capital-importing countries.

The model used to estimate the gains from trade in this article is based on the separate

production factors into primary and management expertise or technology. Several scenarios were

made by the authors showing the impact of each policy on the gains of trade.

Forward I will focus on the impact of liberalizing Foreign Direct Investment on the business

and manufacturing sector. It is assumed that there is no tariff reduction and improved market access.

Foreign investments increase, so the domestic variety in services decreases but the net variety is higher.

Thus both domestic and foreign companies would lower their costs and a higher productivity would be

obtained. Due to the strong correlation between the manufacturing sectors which export a large share

of the outputs and the business sectors which provide their inputs, the former is likely to expand given

the fact that it will gain an increase in export prices.

Documentul este o evaluare critica a unui articol academic pentru Comert International la Relatii Economice Internationale-ASE si este in limba engleza. Are aprox. 1000 de cuvinte.

The Impact of Liberalizing Barriers to Foreign Direct Investment in Services - The Case of Russian Accession to the World Trade Organization