the standard deviation of the welfare results across the 55,098 households.<sup>45</sup> The overall results are very similar to the results for the single representative consumer model. For our central WTO scenario (column 1), we obtain rather substantial aggregate gains for a comparative state trade model equal to 7.3 percent of aggregate consumption. To determine what is driving these results, we decompose the WTO scenario into its three components. The results are shown in columns three, four and five. The key result is that liberalization of barriers to foreign direct investment is responsible for an estimated welfare gain of 5.3 percent of consumption, or over 70 percent of the total welfare gain.

To put these numbers in perspective, Rutherford and Tarr (2002) have analytically derived the relationship between a permanent increase in the steady state growth rate and equivalent variation. A welfare gain of 10 percent of consumption corresponds to a permanent increase in the growth rate of about 0.4 percent. Although cross country assessments of the impact of trade liberalization on growth have been criticized, several authors have estimated that trade liberalization could increase the growth rate by between one and 2.5 percent.<sup>46</sup> Similar to the single consumer model, if we assume constant returns to scale in all sectors of the economy, the estimated gains (column 6) are reduced to 1.2 percent of consumption. These results 45 For each of our 55,098 households h, we estimate its equivalent variation (EVh) and we have the value of the household‘s initial consumption (Ch). Define 100 evh = 100 [EVh/Ch], which is the increase in the equivalent variation of household h as a percentage of its initial consumption. To calculate the mean and standard deviation of the 55,098 values of 100 evh we need to take into account that the households in the sample are statistically representative of the Russian population, and each household in the Household Budget Survey has a weight wh that reflects the number of people it represents in the overall Russian population. We normalize the household weights by defining αh = wh /∑h wh The weights αh for h = 1, .,55,098 are each household‘s share of the total Russian population. Thus, our estimated weighted average increase in equivalent variation as a percent of initial household consumption is 100 ∑h αh evh = μ. Calculation of the weighted average variance of the increase in equivalent variation as a percent of initial consumption follows similar principles; it is defined as: ∑h [αh 100<sup>2</sup> {evh - μ }<sup>2</sup> ]. We report the positive square root of this value in table 4.1, i.e., the standard deviation. 46 These cross-country regression results are controversial, since trade liberalization is often accompanied by macro stabilization and other market reforms, and the open economy variable in the regressions can be picking up these other effects as well. Moreover, institutional reforms may also be rather important. But trade reform may compel complementary reforms, such as the elimination of state subsidies which are often unsustainable in an open economy. And WTO accession involves a number of institutional reforms. For example, liberalization of foreign direct investment in services will put great pressure on the regulatory authorities to improve the institutional environment.

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