exchange rates).<sup>5</sup> Based on the econometric estimates of the gains from an open economy trade regime, these estimated gains are very plausible.<sup>6</sup> Rutherford and Tarr (2008) examined household and poverty impacts and found that virtually all households should gain from WTO accession. They find that skilled labor and urban households gain relatively more than average due to the increase in foreign direct investment in the skill intensive business services sectors. Rich households should gain less than the average household, since increased competition from foreign investment results in capital gaining less than labor. The poorest households are estimated to gain at about the level of the average household.

Given the vast geographic diversity of Russia, Rutherford and Tarr (2010) estimated how impacts would vary across the regions of Russia in a ten region model of Russia. They estimate that all regions should gain substantially, but the regions that will gain the most are those that are most successful at attracting foreign direct investment and creating a good investment climate.<sup>7</sup> 5 Russia’s GDP at market exchange rates is estimated at $1.61 trillion by the World Bank; $1.68 trillion by the IMF and $1.76 trillion by the CIA, making it either the eighth or ninth largest economy in the world. Based on Purchasing Power Parity (PPP) exchange rates, Russia’s GDP was $2.3 trillion in 2008, making it the sixth largest economy in the world—larger than the UK or France. At PPP exchange rates, the estimated gains per year for WTO accession would rise in the medium term to about $76 billion per year and $253 billion per year in the long term.

6 A welfare increase of 3.3 percent of GDP is quite plausible in the context of the estimated gains from trade liberalization from econometric studies. First, Rutherford and Tarr (2002) have shown that a permanent increase of between 0.4 percent and one percent in the growth rate of an economy corresponds to a welfare increase of between 10 and 35 percent. Sachs and Warner (1995) estimate that open economies have grown about 2.45 percent faster than closed economies, with even greater differences for open versus closed economies among developing countries. They note that trade liberalization is often accompanied by macro stabilization and other market reforms, and their open economy variable can be picking up these other effects as well. But they argue that trade liberalization is the _sine qua non_ of the overall reform process, because other interventions such as state subsidies often are unsustainable in an open economy. Moreover, Frankel and Romer (1999) have shown that adjusting for the simultaneity bias in cross country regression studies such as Sachs and Warner, does not reduce the estimated impact of openness on growth. More recently, using time series data on individual countries, rather than cross-country growth regressions, Wacziarg and Welch (2009) find compelling evidence that countries grow about 1.5 percentage points faster after they liberalized trade.

Rodrik, Subramanian and Trebbi (2004) and Bolaky and Freund (2008) have highlighted the importance of good institutions to economic growth. Bolaky and Freund have shown that in 25% of the countries with the worst business and labor regulations, open trade can harm growth. On the other hand, for the 75% of the countries with the best business and labor regulations, open trade has an even stronger beneficial impact on growth than previous authors have found. But Dollar and Kraay (2003) find evidence that trade is more important than institutions in the medium terms; and Rodrik, Subramanian and Trebbi have shown that trade liberalization can improve institutions while Ades and di Tella (1999) find evidence that increased trade leads to reduced corruption.

7 They estimate that as a percent of consumption in the medium term the three regions in their model that will gain the most are the Northwest (11.2 percent), St. Petersburg (10.6 percent) and Far East (9.7 percent) while the Urals (6.2%) gains the least.

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