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Trade and direct investment in producer services and the domestic market for expertise

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  • James Markusen
  • Thomas F. Rutherford
  • David Tarr

Abstract

. Foreign producer services can provide substantial benefits for domestic firms. We build on earlier monopolistic‐competition models of intermediate producer services in this paper. Results show that: (1) while foreign services are partial‐equilibrium substitutes for domestic skilled labour, they may be general‐equilibrium complements, (2) service trade can provide crucial missing inputs that reverse comparative advantage in final goods, (3) the ‘optimal’ tax on imported services may be a subsidy, and (4) in our dynamic formulation, there may be earnings losses for immobile workers along a transition path that suggest potentially important equity consequences of reform. JEL classification: F12, F16, F23 Commerce international et investissement direct dans les services de production et le marché intérieur de l’expertise. Les services de production en provenance de l’étranger peuvent engendrer des avantages substantiels pour les entreprises domestiques. Dans ce mémoire, les auteurs construisent sur la base de certains modèles antérieurs de concurrence monopolistique de services de production intermédiaires. Les résultats montrent que: (1) alors que les services de l’étranger sont des substituts pour le travail domestique spécialisé en équilibre partiel, en équilibre général, ils peuvent être des compléments; (2) le commerce de services peut fournir des intrants cruciaux qui manquent et ce faisant renverser les avantages comparatifs dans les produits finaux; (3) la fiscalité optimale imposée sur les services importés peut être une subvention; et (4) dans la formulation dynamique du modèle, il peut y avoir perte de revenus pour les travailleurs immobiles le long du sentier de transition, ce qui suggère qu’il peut y avoir des conséquences importantes au plan de l’équité associées à certaines réformes.

Suggested Citation

  • James Markusen & Thomas F. Rutherford & David Tarr, 2005. "Trade and direct investment in producer services and the domestic market for expertise," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(3), pages 758-777, August.
  • Handle: RePEc:wly:canjec:v:38:y:2005:i:3:p:758-777
    DOI: 10.1111/j.0008-4085.2005.00301.x
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    References listed on IDEAS

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    1. Rutherford, Thomas F, 1999. "Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: An Overview of the Modeling Framework and Syntax," Computational Economics, Springer;Society for Computational Economics, vol. 14(1-2), pages 1-46, October.
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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