Thorvaldur Gylfason 2009 MEFMI COMBINED FORUM CYPRUS, 29 SEPTEMBER 2009.
Thorvaldur Gylfason Inmaculada Martinez-Zarzoso Per Magnus Wijkman The natural effect of trade is to...
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Transcript of Thorvaldur Gylfason Inmaculada Martinez-Zarzoso Per Magnus Wijkman The natural effect of trade is to...
HOW FREE TRADE CAN HELP CONVERT THE ‘ARAB SPRING’
INTO PERMANENT PEACE
AND DEMOCRACY
Thorvaldur Gylfason
Inmaculada Martinez-Zarzoso
Per Magnus Wijkman
The natural effect of trade is to bring about peace.
Montesquieu (1748)
TWO COMPANION PAPERS How Free Trade Can Help Convert the ’Arab
Spring’ into Permanent Peace and DemocracyWith Inmaculada Martínez-Zarzoso (Göttingen)
and Per Magnus Wijkman (Gothenburg) CESifo Working Paper No 3882, July 2012
Which Conflicts Can the European Neighborhood Policy Help Resolve? With Per Magnus Wijkman
Presented at a conference on Globalization, Strategies and Effects at Aarhus University in November 2011, forthcoming in conference volume
CESifo Working Paper No. 3861, June 2012
ENP story
Arab Spring story
SAME STORY, TWO RENDITIONS ENP story
Old Balkan powder keg and what the EU can do to facilitate peace through free trade agreements (FTAs) and integration
Arab Spring storyHow remarkably little the Arab countries
trade with one another and how much they could benefit from more trade and integration plus a well-functioning market economy and more
My coauthors Martínez-Zarzoso: Gravity model econometrics Wijkman: Trade policy, hands on experience
SAME STORY, TWO RENDITIONS ENP story
Old Balkan powder keg and what the EU can do to facilitate peace through free trade agreements (FTAs) and integration
Arab Spring storyUses a panel gravity model of trade to
estimate potential for increased intra-regional trade among 10 countries of the Southern and Eastern Mediterranean coast of the EU
Two initiatives Barcelona Process 1995 aimed at South-Med coast ENP 2004 aimed at Southern and Eastern neighbors
ENP STORY: MAIN AIM OF ENP Resolve conflicts in EU’s neighborhood Basic hypothesis (Montesquieu, Monnet):
Closer economic integration helps resolve political conflicts and vice versa, creating a virtuous circle of prosperity and détente
Strong self-interest in resolving conflicts because their consequences spill over into EU
Identify four keys to successExistence of facilitators of compromise (EU)Well-functioning market economyIntra-regional trade plus FTAsProspect of accession to EU: Strong incentive
ENP STORY: MAIN PLAYERS Acknowledged candidates for full EU
membershipCroatia: Expected to join 2013Turkey and Macedonia: Uncertain time tableMontenegro: Negotiations underwaySerbia: Needs to normalize relations with
Kosovo Potential candidates
Albania and Bosnia-Herzegovina Unacknowledged potential candidates
Belarus, Moldova, Ukraine: In EuropeArmenia, Azerbaijan, Georgia: Not in Europe
Thessaloniki Declaration (2003): “future of the countries of the Western Balkans lies in
the EU”North
African
neighbors do not
qualify as
they are not
European
At present,
EU fatigue
TWO DIMENSIONS OF FTAS AFFECTING INCENTIVES
Few Countries
Many Countries
Deep Agreement
DifficultStronger
incentives
Doubly difficult
Extra strong incentives
Shallow Agreement
EasyWeak
incentives
DifficultStronger
incentives
CONFLICT CLASSIFICATION
Conflicts confined to region
Conflicts involving third
countriesPotential candidatecountries
Western Balkans (Kosovo-Serbia, Bosnia-Herzegovina)
Ukraine-Moldova-Transnistria (Russia)Georgia-South Ossetia-Abkhasia (Russia)
Not potential candidatecountries
Western Sahara (Morocco-Algeria)Middle East (Israel, Palestine, and neighbors)
Armenia-Azerbaijan-Nagorno Karabakh (Russia, Turkey)
Easy
Hard
INTRAREGIONAL AND EU TRADE SHARES 2005 (% OF TOTAL)
Balkans EaP S. Mediter0
10
20
30
40
50
60
70
Regional EU
Limited regional trade
BALKAN COUNTRIES: EXPORTS TO NEIGHBORS 2005 (% OF TOTAL)
to Balkans
to EaP to S E Med
to Other to EU 25 to East EU
to South EU
0
10
20
30
40
50
60
70
BALKAN COUNTRIES: IMPORTS FROM NEIGHBORS 2005 (% OF TOTAL)
from Balkans
from EaP
from S E Med
from Other
from EU 25
from East EU
from South
EU
0
10
20
30
40
50
60
70
SOUTH-MED COUNTRIES: EXPORTS TO NEIGHBORS 2005 (% OF TOTAL)
to Balkans to S E Med to EU 25 to South EU to East EU0
10
20
30
40
50
60
Limited regional trade
GDP PER CAPITA 1990-2010 (PPP, CONSTANT 2005 INTERNATIONAL $)
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
ArmeniaAzerbaijanBelarusGeorgiaMoldovaUkraine
EAP COUNTRIES: EXPORTS TO NEIGHBORS 2005 (% OF TOTAL)
to others to EaP to CIS to Balkans
to S and E Mediterr
to EU 250
5
10
15
20
25
30
35
40
Limited regional trade
TWO DIMENSIONS OF DCFTAS
DEEP AGREEMENT
SHALLOW
AGREEMENTMANY COUNTRIES
CEFTA
EFTA
EaP bilaterals
NEC
FEW COUNTRIES
EU
?
?EEA
Agadir+ countries
NEC??
Non-Agadir countries
PAFTA
Balkan bilaterals
EaP CIS agreement
KEY ELEMENTS OF NEW ENP European Endowment for
Democracy and Civil Society FacilityDeep and comprehensive free trade agreements with EU (cf. EaP) withLarge potential gains from trade and Incentives to include key partners in
the region, including Extensive financial and technical aidSecure institutional anchoring (NEC)
Jump to Arab spring story
ARAB SPRING Challenge comparable to that following
collapse of communism Systemic changes requires
1. Change in personnel managing the system
2. Implementation of basic principles of a market economy
3. Foreign financial and technical assistance
4. Sharing common values and adopting common principles, presupposing a strong sense of community solidarity
INTRA-REGIONAL AND EU TRADE SHARES 2005, AGAIN (% OF TOTAL)
Balkans EaP S. Mediter0
10
20
30
40
50
60
70
Regional
EU
AGADIR 4 REGIONAL EXPORT SHARES (% OF TOTAL)
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
2
4
6
8
10
12
14
Agadir 4 to other PAFTA
Agadir 4 to Agadir 4
Agadir 4
comprises
Morocco, Jordan,
Egypt, and
Tunisia
NON-AGADIR 4 REGIONAL EXPORT SHARES (% OF TOTAL)
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
1
2
3
4
5
6
7
%nonAgtononag
%nonAgto Agadir
POOR PROSPECTS … History of failed attempts to integrate
MENA Long embedded conflicts
Israel/PalestineLebanon/SyriaWestern Sahara
Malfunctioning democraciesProlonged civil strife in Algeria, Egypt, Libya,
Syria, Lebanon Imperfect market economies
Entrenched military industrial complexes
… BUT HISTORIC OPPORTUNITY
Large economic gains from trade if successful
MENA states have high tariffs and extensive non-tariff barriers
Intra-regional trade is exceptionally small, so large gains are possible
Large potential for FDI in MENA to supply EU markets
THUS FAR, LIMITED SUCCESS Main reasons for failure
Incomplete barrier coverage Most FTAs are shallow, not deep,
excluding barriers inside borderIncomplete commodity coverage
EU’s FTAs exclude agricultural products
Incomplete country coverage of FTAs PAFTA excludes Israel
ESTIMATING MODEL lnXijt= β0 +β1FTAijt +ηij+δit +ψjt+εijt
ηij denotes binary fixed effects, specified as dummy variables for each bilateral relation
δit are exporter-and-time fixed effectsψjt are importer-and-time fixed effectsFTAijt denotes FTAs and varies by
origin, destination, and over time
RESULTS: EFFECTS OF FTAS ON TOTAL EXPORTS AND IMPORTS
Imports ExportsEUMED 0.243***
(0.083)-0.128(0.139)
EFTAMED 0.081(0.183)
0.000(0.205)
USAMED -0.223(0.502)
1.363(0.975)
TURMED 0.593***(0.206)
0.407(0.394)
PAFTA 0.551(0.357)
-0.062(0.327)
AGADIR 0.376*(0.216)
0.208(0.225)
TUREU 0.412**(0.173)
0.610***(0.232)
NOBS 11006 10405R2-Adjusted 0.293 0.117RMSE 1.129 0.688LL -16254.2 -10180.34
Imports = MENA total imports from the 64 economies that represent 90% of their total imports
Exports = MENA total exports to the 64 economies that represent 90% of their total exports
Interpreting the results: Intra-Agadir trade is around 46 percent higher after the entry into force of the agreement as e0.376 – 1 = 0.456
RESULTS: EFFECTS OF FTAS ON TOTAL EXPORTS AND IMPORTS Specific results
Intra-PAFTA exports have increased significantly, by around 67%
EU exports to Turkey have increased by around 67%
Exports from Turkey to EU have increased by 50%
Turkish exports to Mediterranean countries increased on average by 80%
Israel’s imports from Turkey have quadrupled after 1997, controlling for distance, common border, incomes and incomes per capita
FURTHER RESULTS (NOT SHOWN) The effect of the Turkey-Israel
agreement has been to Triple Israel’s imports from Turkey
and Increase Israel’s exports to Turkey
by 80%Significant benefits would emerge
from an FTA between Egypt and Israel (Egger and Larch, 2007)
TO SUCCEED THE ENP MUST … Incude NTBs to trade Include agriculture in bilateral DCFTAs between EU and
MENA countries Initiate a regional DCFTA between Egypt, Israel, Jordan Expand this to other MENA states by making
participation in regional DCFTA a condition for a DCFTA with EU
Clarify the proposed NEC institutions
TO SUCCEED THE ENP MUST … Ensure agreement between
participating Member States Respect stronger conditionality Reward fullfilment of goals
“More for more” Devote greater resources to: DCFTAs Reward conflict resolution (for
Turkey? For the ME states? For Morocco-Algeria?)
A tall order requiring strong political leadership!
THE END