valorem barriers in business services sectors. Their exact levels are presented in Table 2, together with the actual market shares controlled by multinationals in Tanzania. The table also displays the tariff levels considered in the model, which stem from a particularly detailed data set provided by the Tanzanian Revenue Authority. Due to the outstanding quality of the latter data, Jensen and Tarr (2010) and Jensen et al. (2010) replaced the tariffs initially present in the SAM developed by Thurlow and Wobst (2003). We also use the tariffs in the Jensen et al. (2010) study in the present model. More information on the weight of sectors in private consumption, aggregate exports and imports, as well as the weight of intermediates from business services in their total costs, is also displayed in that table for future reference.

# **4. The model**

Tanzania is modeled as a small open economy. In its present version the model is the successor of a family of CGE models specialized in the analysis of trade, FDI and regulatory barriers. The model was first applied to the accession of Russia to the World Trade Organization (Jensen et al., 2007; Rutherford and Tarr, 2008). The findings suggest that FDI liberalization in services (i.e., the reduction of barriers to the entry of multinationals) has a much stronger impact than liberalization of tariffs in traditional competitive models of trade in goods. As noted above, not many CGE models have considered the presence of multinationals. Further, the modeling technique is very innovative due to the above mentioned Dixit-Stiglitz-Ethier mechanism incorporating variety effects. Besides, it is also innovative because the model incorporates different technologies of production of multinationals compared to domestic firms operating in the same sector. Multinational service providers import some specialized inputs. Only a few CGE models have incorporated ways of differentiating the technology used by national firms from that of multinationals (e.g., Lakatos and Fukui, 2014; Latorre, 2013; Gómez-Plana and Latorre, 2014; Hosoe, 2014; Latorre and Hosoe, 2013).

The model of Russia has been used in previous analyses of Tanzania (Jensen et al., 2010). As in those analyses, we retain the 52-sector disaggregation, which, in turn, expanded the 43 sectors available in the original SAM for Tanzania (Thurlow and Wobst, 2003). There are 35 perfectly competitive sectors, 18 of which are in Agriculture. These goods and services, produced under constant returns to scale, are differentiated in the demand functions of Tanzanian consumers and firms through the Armington assumption. These sectors appear under the headings of “Agriculture” and “Other CRTS”. The model also incorporates 17 sectors producing under increasing returns and imperfect competition. They are further split into the advanced Business services sectors, which are central to the simulations, and the DixitStiglitz sectors, which include most manufacturing sectors. The demand from both firms and consumers of products or services from the latter sectors is characterized as a Dixit-StiglitzEthier composite of domestic and imported varieties with firm-level product differentiation. The Dixit-Stiglitz elasticities are obtained from Broda and Weinstein (2004) and Broda, Greenfeld and Weinstein (2006). In the imperfectly competitive sectors marginal costs are 9