**Share of the Output of the Sector produced by Multinational Service providers.** The impact of liberalization of barriers to foreign direct investment in business services sectors on the demand for labor in these sectors will depend importantly on the share of the output of the sector sold by multinationals. For crude oil and gas, land transport, water transport, financial intermediation, insurance, and IT services, we employ an average of two proxies. One proxy is the share of employees in large and medium enterprises with foreign ownership (Year: 2003, Source: Labour Statistics Department, Statistical Agency of Kazakhstan). The other source is the share of total value-added captured by firms with foreign ownership (Year: 2003, Source: National Accounts Department, Statistical Agency of Kazakhstan). Since these data sources produce unequal estimates, we use an average of the two as our central estimate; we use the actual values as the bounds for the sensitivity analysis.

For communication, we have detailed data on revenue by type of telecommunication services. (Year: 2005, Source: Interfax Kazakhstan - AIC http://www.aic.gov.kz). We aggregate the data to three types of services: Fixed line, mobile and internet. Fixed line and internet services are dominated by Kazakhstan firms, whereas mobile services are almost exclusively provided by firms with significant foreign ownership. We use the revenue share for mobile firms as our estimate of the marketshare of foreign firms in the telecommunication sector. For air transport, our estimate is based on interviews with Kazakhstan experts.

**Share of Expatriate Labor.** We also have a parameter in the model for the share of expatriate labor used by multinational firms. We show in the sensitivity of results section that this parameter does not impact the welfare results significantly. On the other hand, despite the fact that multinationals use Kazakhstan labor less intensively than their Kazakhstan competitors, if multinationals use mostly Kazakhstan labor, their expansion is likely to increase the demand for Kazakhstan labor in these sectors.<sup>11</sup> Due to lack of data in Kazakhstan, we used our estimates from our Russia model for this parameter; but we perform sensitivity analysis with respect to this parameter.

**Tariff and Export Tax Data.** We begin with tariff rate data at the four digit Harmonized System level based on government decree number 1389 of the Republic of Kazakhstan with updates and amendments as of May 5, 2005.<sup>12</sup> We then aggregated the four digit data to two digit categories using a simple average method of tariff rate aggregation.  Subsequently, we mapped the two digit tariff lines to the sectors of our model and again used a simple average of the tariff rates to obtain the tariff rates at the level of aggregation of our model.  The export tax rate data were taken from the rates implied by the input-output table.

by which telecommunications prices are elevated due to the barriers and if we assume Kazakhstan domestic service providers prices are unaffected, then we may solve for x from: sx + (1-s)*0 = .16. That is, x= .16/s. Since our data indicates that s = .55, then x = .29 or 29%.

Barriers to foreign direct investment, however, have an indirect effect on the price of Kazakhstan telecommunications services. Consequently, sx + (1-s)*y = .16 may be more appropriate, where y is the amount by which the price of Kazakhstan telecommunication services are increased in the benchmark as a result of barriers on multinational telecommunications service providers. The value of y would have to be less than the value of the increase in composite services (0.16). It is likely that the indirect effect of barriers to foreign direct investment on the price of domestic Kazakhstan telecommunications services is less than 0.05, since the composite price increased by only 0.16 and lower values of y yield higher estimates of x. But if we take y=.05, then x equals 0.25. We take a conservative estimate here of 0.25 or 25% for telecommunications.

11 See Markusen, Rutherford and Tarr (2005) for a detailed explanation on why FDI may be a partial equilibrium substitute for domestic labor but a general equilibrium complement.

12 The data were extracted from “Jurist” (a source of data on the laws of Kazakhstan) as of September 29, 2005. This is an on-line data source at <u>http://base.zakon.kz. Tariff rates for Kazakhstan may also be found at http://zakon.kz/,</u> which is an electronic reference database to the legislation of Kazakhstan.

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