Modelling Multilateral Trade Liberalization in Services

We examine the importance of various characteristics of services for the modelling of the effects of trade liberalization in services. We consider first the characteristics that our own computable general equilibrium (CGE) modelling framework has been designed to address: variety, scale, and competition. Modifying it somewhat so as to distinguish the separate roles of these characteristics, we find the characteristics to be relatively unimportant for the conclusions that one reaches about the effects of trade liberalization on the economy. We then consider other characteristics that may distinguish services from goods, and ask whether these also need to be taken into account in such modelling exercises. With one exception we conclude that these characteristics are unlikely to play an important role in future models of trade liberalization. The one exception is a characteristic identified by Ethier and Horn (1991), who saw producers of services as specializing their products to the particular needs of their customers. While it does not seem feasible at this time to incorporate this feature into a manageable CGE framework, we believe that it could have interesting and important implications for our understanding of the effects of trade liberalization if it were ever done