# **Key Data**<sup>**11**</sup>

## **Ad Valorem Equivalence of Barriers to Foreign Direct Investment in Services Sectors**

Among the key restrictions against multinational service providers that have existed or exist in Russia are: the Rostelecom monopoly on long distance fixed-line telephone services (scheduled to be removed), affiliate branches of foreign banks are prohibited, and there is a quota on the multinational share of the insurance market.<sup>12</sup> Estimates of the ad valorem equivalence of these and other barriers to FDI in services are key to the results. Consequently, we commissioned 20 page surveys from Russian research institutes that specialize in these sectors and econometric estimates of these barriers based on these surveys.

These questionnaires provided us with data, descriptions and assessments of the regulatory environment in these sectors.<sup>13</sup> Using this information and interviews with specialist staff in Russia, as well as supplementary information we provided to them, Kimura, Ando and Fujii then estimated the ad valorem equivalence of barriers to foreign direct investment in several Russian sectors, namely in telecommunications; banking, insurance and securities; and maritime and air transportation services.<sup>14</sup> The process involved converting the answers and data of the questionnaires into an index of restrictiveness in each industry. Kimura et al. then applied methodology explained in the volume by C. Findlay and T. Warren (2000), notably papers by Warren (2000), McGuire and Schulele (2000) and Kang (2000). For each of these service sectors, authors in the Findlay and Warren volume evaluated the regulatory environment across many countries. The price of services is then regressed against the regulatory barriers to determine the impact of any of the regulatory barriers on the price of services. Kimura et al. then assumed that the international regression applies to Russia. Applying that regression and their assessments of the regulatory environment in Russia from the questionnaires and other information sources, they estimated the ad valorem impact of a reduction in barriers to foreign direct

> 11 Several Armington elasticities have recently been estimated for Russia by Ivanova (2005). We took these values where they were available, as explained in figures 2 and 3. Otherwise, elasticities were taken from Jensen, Rutherford and Tarr.

12 The protocol on Russian accession signed between the European Union and Russia on May 21, 2004 calls for the termination of the Rostelekom monopoly by 2007 and allows for an increase in the upper limit on the multinational share of the Russian insurance market.

> 13 This information was provided by the following Russian companies or research institutes: Central Science Institute of Telecommunications Research (ZNIIS) in the case of telecommunications, Expert RA for banking, insurance and securities; Central Marine Research and Design Institute (CNIIMF) for maritime transportation services and Infomost for air transportation services. We thank Vladimir Klimushin of ZNIIS; Dmitri Grishankov and Irina Shuvalova of  ExpertRA; Boris Rybak and Dmitry Manakov of InfoMost; and Tamara Novikova, Juri Ivanov and  Vladimir Vasiliev of CNIIMF. The questionnaires are available at <u>www.worldbank.org/trade/russia-wto.</u> The same sources provided the data on share of expatriate labor discussed below.

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