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Service Liberalization within Africa – Trying to Quantify the Potential Economic Impact

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Service Liberalization within Africa – Trying to Quantify the Potential Economic Impact

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Over the last few years tralac and others have undertaken significant research on the implications of trade liberalisation in Africa. For example, Jensen and Sandrey (2015) model several liberalisation scenarios related to intra-African integration. They show that the results for tariff elimination on intra-African trade are promising, but the real news is in confirming that these barriers are not as significant as the various non-tariff barriers. Especially impressive results were forecast by simulating a modest 20% reduction in the costs associated with the particular African problem of transit time delays at customs, terminals and internal land transportation. This issue of time in transit could be thought of as a component of services trade, and leads us into the next frontier of modelling, that of service and foreign direct investment (FDI) liberalisation scenarios in Africa.

Although there is a body of literature associated with global services liberalisation, there as yet is very limited analysis of services liberalization within Africa. The objective for this paper is to provide a first preliminary step in this direction. The approach is to model/analyze the behind the border service trade barriers which often are in the form of restrictive regulations affecting the establishment and operations of domestic and Foreign Service suppliers. More precisely, the focus of the paper will be on foreign invested firms established in the host countries domestic market and the reduction in discriminatory barriers to these foreign services providers. An additional indicative analysis is also undertaken where regulatory restrictions that affect domestically owned service suppliers will also be liberalized.

In modeling this socioeconomic effect of service liberalization a twostep approach is used where the first step utilizes econometric analysis to identify the impact of service barriers on the level of FDI in the host countries, and then these estimates are fed into a CGE model to get an economy wide impact assessment of service restrictions.

This paper was prepared to assist discussion at a week-long Workshop on modelling African services held in Addis Ababa, Ethiopia from 16-20 May 2016, sponsored by the United Nations Economic Commission for Africa (UNECA).

Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.


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