characterize both types of measures and the likely impacts of reform is important for work in this area to be policy-relevant.<sup>38</sup>

# **9 Conclusions**

Because of the dominance of the service sector in most economies, it is clearly appropriate that CGE modeling of market access has begun to move away from an exclusive focus on goods trade. However, this is a relatively recent development, and there is a need for more investment in theory and data before incorporation of services trade and investment can move beyond being rather crude. The credence that should be placed in the numbers generated by CGE assessments of market access in services depends very much on the validity of the modeling assumptions made and the data that are used. While the accuracy of the specific numbers generated is certainly open to question, the conclusion that services liberalization can generate much larger welfare effects than goods liberalization is probably robust.<sup>39</sup> Yet clearly, to be more informative, CGE analyses need to be able to draw on empirical research that estimates the effects of policies on markups and costs.

This need includes investing effort in better representation of the role that services play in distribution, communications, and investment in modern economies, their role as intermediate inputs and a determinant of aggregate productivity of the economy (through downstream as well as direct productivity impacts), and the interaction between market structure, trade, FDI in services, and industry performance in goods. While the available econometric results are rough and imprecise, they suggest that service-related trade policy reforms that were implemented by most countries on a unilateral basis during recent decades may have been an important force for productivity growth. Evidence is also growing that the price effects of protection (trade costs) in the service sectors may be quite large compared to remaining import protection of goods sectors. Ignoring policies affecting trade and investment in services, and more generally regulatory policies

> 38See the example in Section 7, as well as Balisteri, Rutherford, and Tarr (2009). In the latter, the authors work with survey data to benchmark barriers to foreign service firms as well as regulatory barriers that affect both foreign and domestic business service providers in Kenya. They identify large potential gains from reform (up to 50% of baseline consumption in the long-run). However, this is not from removing prevailing market access restrictions per se, but rather from regulatory barriers that are applied on a non-discriminatory basis. This message is consistent with our own assessment of Italy in this paper. Domestic regulation is likely as important, if not more so, as market access conditions.

39One of the authors of this paper recalls a presentation by Bob Stern of the Brown, Deardorff, Fox, Stern (1996) results. Stern characterized the modeling process at the time as follows. ”With modeling, we are lifting policy rocks, looking underneath for big effects. We don’t know much about services trade yet, but given the size of the sector, the rocks are big, and so the effects underneath are likely to be as well.” 37