Working Paper: CEPR ID: DP2095
Authors: Bernard Hoekman; Denise Eby Konan
Abstract: Key questions in evaluating the justification for free trade agreements (FTAs) are whether formal international cooperation is necessary to promote greater contestability of markets through harmonization or recognition of regulatory regimes ("deep integration"), and whether any actions taken to reduce market segmentation are applied on a nondiscriminatory basis. This paper investigates the potential importance of deep integration in the context of trade agreements the EU has concluded with Mediterranean countries. Using a standard competitive general equilibrium model of the Egyptian economy, we find that the static welfare impact of a deep FTA is a multiple of what can be obtained from a classic "shallow" agreement; in some scenarios welfare may increase by more than 10 percent of GDP, compared to close to zero under a shallow agreement.
Keywords: preferential trade agreements; deep integration; trade in services; nontariff barriers; Egypt; Arab League
JEL Codes: F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| deep integration through trade agreements (F15) | substantial welfare gains for Egypt (D69) |
| elimination of regulatory barriers and red tape (L51) | substantial welfare gains for Egypt (D69) |
| shallow PTA with the EU (F55) | small welfare decline (I38) |
| services liberalization (L86) | potential welfare gains from better access to European service markets (O52) |
| regulatory barriers (L51) | welfare gains contingent upon elimination on a nondiscriminatory basis (D69) |