of dead-weight costs generated by a gravity model regression (or alternatively estimated from price comparisons).<sup>19</sup> However, while recent practice has focused on pure trade costs, emerging evidence (e.g. ECORYS, 2009) suggests that the best practice most likely lies in modeling a combination of dead weight costs and rents.<sup>20</sup> A problem with much of the early literature is the absence of any empirical estimates of the extent to which policies generated rents and which groups benefitted from such rents. Instead, authors tended to provide a range of results based on different assumptions regarding the extent to which estimated price or cost wedges reflected rents as opposed to waste. In a prospective analysis of services liberalization in Tunisia, for example, Konan and Maskus (2006) assumed that barriers were half rent-creating and half-resource wasting in the absence of empirical evidence on this matter. Subsequent work by Dee and Diop (2010) based on better empirical estimates of the welfare effects of barriers concludes that the impacts of services trade reforms will be smaller than those estimated by Konan – and Maskus although in part this also reflects a different baseline and changes in the Tunisian economy during the 2000s. It is obviously important that models incorporate empirical estimates of the magnitude of any rents. There has been extensive recent effort to quantify the effects of nontariff measures (NTMs) affecting trade in services and to break down the extent to which they generate rents or costs in the context of regional integration negotiations.<sup>21</sup> ECORYS (2009) estimates, based on firm surveys, that there is an approximate 60:40 split in the extent to which barriers increase the cost of doing business for all firms, and the extent to which generate rents for domestic firms. They also provide a CGE-based assessment of reduction in nontariff measures affecting trade between the US and the EU, which suggests that service barriers are at least as important as barriers to trade in goods.

A second approach taken in CGE modeling of the effects of changes in policies focuses on both direct trade costs and the ancillary effects of policies affecting FDI. Reflecting our discussion of productivity channels in Section 3, this litera-

> 19In multi-region CGE models, modeling services barriers as iceberg or dead-weight trade costs was pioneered with support from the EC to study services trade under the the Millennium Round –now known as the Doha Round (Francois 1999, 2000). This approach has grown from an extension in Francois (1999) to a now standard feature of the GTAP model, following Hertel, Walmsley and Itakura (2001). It has featured in the joint Canadan government and EC (2008) joint study on a EU-Canada Trade Agreement, as well as the ECORYS (2009) study on EU-US barriers.

> 20This issue figured prominently in work by Denise Konan – see e.g., Hoekman and Konan, 2001; Konan and Maskus, 2006; Konan and Kim, 2005; and Konan and Van Assche, 2007.

> 21For example the EC has sponsored studies on NTMs in services in North America and Japan. These include ECORYS (2009) and Sunesen et al. (2009), as well as several earlier path-breaking Australian studies, focused on the Asia Pacific region. Several of the latter are included in Findlay and Warren (2000) and are surveyed in Dee (2005) and Deardorff and Stern (2008).

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