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Global Gains from Liberalising Trade in Telecommunications and Financial Services

Staff research paper

This paper by George Verikios and Xiao-guang Zhang was released on 16 October 2001, in conjunction with the staff research paper, Price Effects of Regulation: Telecommunications, Air Passenger Transport and Electricity Supply. This study provides a quantitative analysis of the effects of trade liberalisation on two large service sectors: telecommunications and financial services.

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The Productivity Commission has released two staff research papers entitled Price Effects of Regulation: International Air Passenger Transport, Telecommunications and Electricity Supply and Global Gains from Liberalising Trade in Telecommunications and Financial Services.

These two staff research papers are the latest in a stream of research exploring the price and other effects of regulatory regimes in service industries. They apply new analytical methods to extend this emerging area of economic research. The results from both studies provide insights into the mechanisms by which regulatory regimes affect service industries and the economy.

Price Effects of Regulation draws on research undertaken at the OECD to quantify the effects of domestic regulatory regimes on prices in up to 50 economies for 3 sectors — international air passenger transport, telecommunications and electricity supply. The study finds wide variations in regulatory regimes across economies for each sector.

The results suggest a positive relationship between the stringency of regulatory regimes and higher prices in each sector. For example, the bilateral system of restrictions on the number of air passenger flights between countries and the conditions under which they operate are estimated to collectively increase airfares by between 3 and 22 per cent. Global Gains from Liberalising Services uses a general equilibrium model to assess the effects of liberalising trade in telecommunications and financial services for 19 regions of the world.

Results suggest that economies gain from removing barriers to the establishment of new operations (domestic or foreign), and by liberalising the operations of existing operators. For the world as a whole, the one-off gains are estimated to be at least 0.2 per cent of combined GNP, or about US$50 billion.

Background information

Patrick Jomini (Assistant Commissioner) 03 9653 2176

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Cover, Copyright, Contents, Preface, Acknowledgments, Abbreviations, Key Findings, Overview

1 Introduction
1.1 The GATS and unique features of services trade
1.2 Gains from liberalising trade in telecommunications and financial services

2 Analytical framework
2.1 Commercial presence of foreign affiliates
2.2 Cross-border supply of services
2.3 Barriers to trade in telecommunications and financial services

3 Policy options
3.1 Trade liberalisation under the GATS
3.2 Liberalisation scenarios modelled

4 Liberalising trade in telecommunications
4.1 Global and regional effects
4.2 Sectoral effects

5 Liberalising trade in financial services
5.1 Global and regional effects
5.2 Sectoral effects

6 Conclusion
6.1 General results
6.2 Policy implications
6.3 Agenda for future work

A A diagrammatic illustration of the comparative static gains from removing barriers to commercial presence

B Modelling commercial presence in the FTAP2 model
B.1 Supply of capital
B.2 Demand for firm-specific products

C Database construction

D Estimating tax equivalents of barriers to trade in telecommunications and financial services