The Importance of Telecommunications Reform in Russia's Accession to the WTO

Abstract

What can Russia gain from committing to reform its telecommunications sector as part of its accession to the World Trade Organization (WTO)? We employ a computable general equilibrium model of the Russian economy that incorporates foreign direct investment (FDI). Liberalization of barriers to FDI in services sectors results in endogenous productivity effects through Dixit-Stiglitz (1977) variety effects. We find that reducing Russian barriers to FDI in telecommunications is crucial to Russia reaping full gains from WTO accession--1.6 percent of the value of Russian consumption in the medium term, and potentially much greater long-term gains. It will also lead to reduced quality-adjusted prices paid by industrial and consumer users of telecommunications and increased productivity for Russian labor and capital. Demand for Russian labor employed in telecommunications should increase, because multinational telecommunications companies employ mostly Russian labor. Russian capital owners in telecommunications will likely be sought as joint-venture partners, and they can restructure their companies and obtain gains as partners with foreign firms. Wholly owned Russian firms that do not become part of multinational joint ventures, however, are likely to experience losses.

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