# Contents

|1. Introduction ................................................................................................................................. 1|
|---|
|2. Review of the Applied General Equilibrium Literature on Regional Agreements and Foreign|
|Direct Investment Liberalization in Services .................................................................................. 4|
|2.1 Applied General Equilibrium Literature Assessing Goods Market Preferential|
|Liberalization. ............................................................................................................................. 4|
|2.2 Applied General Equilibrium Literature Assessing Foreign Direct Investment in Services 5|
|3. Overview of the Model ............................................................................................................... 6|
|3.1 Perfectly competitive goods and services sectors ................................................................. 7|
|3.2 Goods produced subject to increasing returns to scale ......................................................... 8|
|3.3 Service sectors in which foreign direct investment occurs ................................................... 9|
|4. Data of the Model and Evidence for Key Elasticities .............................................................. 10|
|4.1 Ad Valorem Equivalents (AVEs) of the Barriers Against Foreign Suppliers of Business|
|Services. .................................................................................................................................... 10|
|4.1.1World Bank Services Trade Restrictiveness Indices Database. .................................... 11|
|4.1.2 Methodology based on the Australian Productivity Commission Methodology. ........ 11|
|4.2 Ad Valorem Equivalents (AVEs) of the Non-Discriminatory Barriers Against Suppliers of|
|Business Services in Kenya and Tanzania ................................................................................ 13|
|4.3 Estimates of the Ad Valorem Equivalents of the Costs of Time in Exporting and Importing<br>................................................................................................................................................... 13|
|4.4 Estimates of the Ad Valorem Equivalents (AVEs) for Non-Tariff Measures (NTMs) for the|
|Regions of our Model ................................................................................................................ 14|
|4.5 Tariff Data ........................................................................................................................... 14|
|4.5.1 Kenya. ........................................................................................................................... 14|
|4.5.2 Tanzania. ....................................................................................................................... 15|
|4.5.3. Regions other than Kenya or Tanzania. ....................................................................... 16|
|4.6 Social Accounting Matrices ................................................................................................ 16|
|4.7 Trade Data by Regional Partner and Sector ........................................................................ 16|
|4.8 Share of Market Captured by Foreign Direct Investors in Services and by Cross-Border|
|Sales of Services........................................................................................................................ 17|
|4.8.1 Kenya and Tanzania. .................................................................................................... 17|
|4.8.2 Regions other than Kenya and Tanzania. ..................................................................... 17|
|4.9 Share of Expatriate Labor Employed by Multinational Service Providers. ........................ 18|
|4.10 Key Elasticities .................................................................................................................. 18|
|5. Results for East African Customs Union Preferential and Multilateral .................................... 19|
|Policies to Reduce Trade Costs..................................................................................................... 19|
|5.1 Deep Preferential Integration Within the East African Customs Union (EACU) .............. 19|
|5.1.1 Aggregate Welfare Effects of Deep Preferential Integration by the East African|
|Customs Union. ..................................................................................................................... 20|
|5.1.2 Preferential Reduction of Time in Trade Costs by EACU. .......................................... 20|
|5.1.4 Reduction of Non-Tariff Barriers within the EACU .................................................... 21|
|5.1.5 Preferential Reduction of Barriers against EACU Service Providers .......................... 21|
|5.1.6 Why the Lack of Trade Diversion. ............................................................................... 22|
|<br>5.2 EACU Multilateral Liberalization ....................................................................................... 23|

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