Modeling Services Liberalization : The Case of Tanzania

Abstract

This paper employs a 52-sector, small,
 open-economy computable general equilibrium model of the
 Tanzanian economy to assess the impact of the liberalization
 of regulatory barriers against foreign and domestic business
 service providers in Tanzania. The model incorporates
 productivity effects in both goods and services markets
 endogenously, through a Dixit-Stiglitz framework. It
 summarizes policy notes on the key business service sectors
 that were prepared for this work, and estimates the ad
 valorem equivalent of barriers to foreign direct investment
 based on these policy notes and detailed questionnaires
 completed by specialists in Tanzania. The authors estimate
 that Tanzania will gain about 5.3 percent of the value of
 Tanzanian consumption in the medium run (or about 4.8
 percent of gross domestic product) from a full reform
 package that also includes uniform tariffs. The estimated
 gains increase to about 16 percent of consumption in the
 long-run, steady-state model, where the impact on the
 accumulation of capital from an improvement in the
 productivity of capital is taken into account. Decomposition
 exercises reveal that the largest gains to Tanzania will
 derive from liberalization of costly regulatory barriers
 that are non-discriminatory in their impacts between
 Tanzanian and multinational service providers.