LIBERALIZATION IN SERVICE NETWORKS: Introduction 4

Finally, we apply our framework to global telecom liberalization in a model covering the EU, the US, Canada, and the Rest of the World, and calibrated to 1991 data. Data on call volumes and pricing is drawn from the World Telecommunication Development Report, and is supplemented by GDP and other data from the World Development Report. Liberalization yields gains larger in size for large (rather than small) regions; consistent with the theme of paper of the differences in liberalization between goods and services.

In concluding, we suggest that our analysis has three implications. The first is that the benefits of liberalization in network related services, unlike for goods, are more likely to be approximately equally divided between countries than is true of trade in goods, and this can occur independently of the size of the countries and the number of residents in each. The second is that non-cooperation in network related services trade may involve extremes of retaliation which go beyond even those suggested for goods trade in the optimal tariff literature, and so the gains from liberalization may be larger in network related services than in goods. The third is the large potential size of welfare gains from trans-border liberalization where network externality effects rather than conventional gains from trade apply. The broader implication is the seemingly different nature of cross border liberalization in network related services compared to liberalization in goods.