Global Gains from Liberalising Trade in Telecommunications and Financial Services

Abstract

This paper quantifies the economic impact of complete liberalisation of trade in two important services sectors, telecommunications and financial services. The General Agreement on Trade in Services (GATS) identifies two types of barriers to trade in services: barriers to market access, and restrictions on national treatment. This paper uses recent estimates of the magnitude of these barriers for telecommunications and financial services. These are barriers to trade remaining after full implementation of the Uruguay Round of multilateral trade agreements. FTAP2, a ‘computable general equilibrium (CGE) model’ of world trade and investment, is adopted for analysis of the effects. Using this model, completely liberalising trade in telecommunications and financial services is estimated to increase world real gross national product (GNP) by 0.2 per cent. The model used to estimate these effects only captures the static gains from trade liberalisation. As such, the dynamic effects of trade liberalisation are not captured in the results. Thus, the estimated gains from the liberalisation can be interpreted as the lower bounds of all potential gains to regional and world economies. The modelling indicates that commercial presence of foreign firms via FDI is an important mode of delivering telecommunications and financial services. So it is vital to model changes in FDI when estimating gains from liberalising trade in these sectors.