Recognizing the vast geographic and income differences of the regions, Rutherford and Tarr (2006) have assessed the impact of Russian WTO accession through the use of a a model of the regions of Russia. That model, however, contained only one representative household in each region. Despite the large differences in incomes between the regions of Russia, 90 percent of the income inequality in Russia is due to within region inequality and only 10 percent is due to between region differences in incomes (World Bank, 2005, p.xix). Thus, for an assessment of the poverty effects of WTO accession, it is necessary to incorporate the within region income diversity as fully as possible.

In this paper we develop a seven region, comparative static, computable general equilibrium model of Russia for the purpose of assessing the impacts of Russian WTO accession on households and poverty. We choose as our seven regions the seven Russian federal “okrugs.” These Russian federal “okrugs” are aggregations of contiguous Russian legal jurisdictions within their geographic boundaries. We list the seven federal okrugs and the Russian jurisdictions that comprise them in table 2. Further details on the federal okrugs, including a map of Russia decomposed into the seven federal okrugs and discussions of the legal jurisdictions that comprise the okrugs may be found on Wikepedia.<sup>4</sup> In order to assess impacts on poverty and income distribution we develop a model with ten representative households in each of the seven federal okrugs. Our information from households is drawn from the relatively new and now publicly available survey of 44, 529 Russian households, known at the NOBUS survey.

Jensen, Rutherford and Tarr (2007) have shown that, regarding Russian WTO accession, a model which allows foreign direct investment in business services and endogenous productivity effects from liberalization of goods and services via the Dixit-Stiglitz-Ethier productivity effect from greater varieties produces estimated welfare gains many times larger than a constant returns to scale (CRTS) model. A CRTS model will capture only the resource allocation efficiency gains from trade in goods, as well as any terms of trade gains. Given that insight, we regard it as essential to go beyond a multi-regional model of Russia based on constant returns to scale. Our model allows foreign direct investment in the business services sectors in a multi-region model of a small open economy and Dixit-Stiglitz endogenous productivity effects from liberalization of foreign direct investment in services plays a role in the interpretation of results.<sup>5</sup> More specifically, the structure of the model for each region of Russia is the

> 3 See Tarr (2007) for a summary of issues, accomplishments and remaining challenges for Russian WTO accession. 4 See http://en.wikipedia.org/wiki/Federal_districts_of_Russia#Central_Federal_District.

> 5 Markusen, Rutherford and Tarr (2005) developed a stylized model where foreign direct investment is required for entry of new multinational competitors in services, but they did not apply this model to the data of an actual economy and there was no foreign direct investment in the initial equilibrium of the model. Brown and Stern (2001) and Dee et al. (2003) employ three sector stylized multi-country numerical models with many of the same features of

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