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Presentation Busse Geneva Presentation Busse Geneva Presentation Transcript

  • The Impact of ACP/EU Economic Partnership Agreements on ECOWAS Countries: An Empirical Analysis of the Trade and Budget Effects Matthias Busse HWWA - Hamburg Institute of International Economics
  • Structure of Presentation
    • 1. Key Economic Indicators and EU-ECOWAS Trade
    • 2. Data and Methodology
    • 3. Empirical Results
    • 4. Conclusions and Policy Implications
    • 15 ECOWAS Members:
    • Benin Ghana Niger
    • Burkina Faso Guinea Nigeria
    • Cape Verde Guinea-Bissau Senegal
    • Cote d’Ivoire Liberia Sierra Leone
    • Gambia Mali Togo
    • (Mauritania left ECOWAS in 1999, but will take part in negotiations)
    1. Key Economic Indicators and EU-ECOWAS Trade Cote d’Ivoire, Ghana and Nigeria are non-LDCs, all other ECOWAS countries are LDCs
    • Main focus of empirical analysis:
    • (1) Estimation of overall trade and budget effects in ECOWAS countries
    • (2) Identification of most affected products in ECOWAS countries
      • Focus on impact on ECOWAS countries, as aggregated effects for EU will be extremely small
        • (EU exports to ECOWAS appr. 0.5 % of total EU exports)
  • Table 1: Population and Income, 2001
  • Table 2: Government Revenue Indicators, 2001
  • Table 3: Trade and Tariff Indicators, 2001
  • Fig. 1: Structure of ECOWAS Imports, 2001
  • Fig. 2: Structure of EU-ECOWAS Trade, 2001 EU Exports to ECOWAS (11.1 bill US$) EU Imports from ECOWAS (10.4 US$)
  • Fig. 3: ECOWAS Imports From the EU, 2001
  • 2. Data and Methodology
    • Data available for ECOWAS countries: extremely poor! (quantity + quality)
    • Data for CGE model not available
      • Domestic production data not available or not reliable
     Relying on suitable partial equilibrium model
      • For some countries, such as Liberia and Sierra Leone, not even tariff and (meaningful) trade data are available
  • Partial Equilibrium Model: Verdoorn (1960)
    • Domestic production not incorporated, model focuses on imports from different sources
    • Key assumptions:
      • Product differentiation between supplying countries (“Armington assumption”), goods are assumed to be imperfect substitutes in use
      • No exchange rate or income effects due to changing trade flows
      • Infinite supply elasticities
    • Import demand function:
    Model of Verdoorn, cont’d. Q 1 , Q 2 : imports (EU, non-EU) P 1 , P 2 : import prices (EU, non-EU)  : import demand elasticity  1 ,  2 : import shares (  1 =Q 1 /(Q 1 +Q 2 ) and  1 +  2 =1) Elasticity of substitution of preferred for non-preferred imports  : elasticity of substitution
    • Differentiation of (2), using (1) and definitions of  1 and  2 (dP 2 =0)
    Model of Verdoorn, cont’d. If the tariff (t) is only eliminated on EU imports and supply elasticities are infinite Change in EU imports, due to preferential tariff elimination:
    • Using (4) and substituting  2 for  1 :
    Model of Verdoorn, cont’d. Separating (5) into trade creation (TC) and trade diversion (TD):
    • Finally, the change in import duties (ID):
    t 1 : Tariff for EU imports t 2 : Tariff for non-EU imports
    • Computation at 4-digit level of the Harmonized System (HS):
      • 1,241 products at this level of aggregation (agriculture, raw materials, manufactured goods, but no services)
    • Base year 2001, except Ghana and Nigeria (2000)
    • Data for Gambia at aggregated level (total imports) only
    Methodology, cont’d.
    • Focus on final stage of tariff elimination
    • Data sources: TRAINS and COMTRADE for tariff and trade data and IMF for customs revenue
  • Table 4: Assumed Values for the Elasticities, 4-digit Level Import Demand Elasticity Elasticity of Substitution Product Low Mid High Low Mid High scenario scenario Agriculture 0.4 0.7 1.0 1.0 2.0 3.0 Raw materials 0.6 0.9 1.2 2.0 3.5 6.0 Manufacturing 0.8 1.1 1.4 1.8 3.0 4.0 Table 5: Assumed Values for the Elasticities, Total Imports, Gambia Import Demand Elasticity Elasticity of Substitution Product Low Mid High Low Mid High scenario scenario Total Imports 0.5 0.7 0.9 1.3 2.0 2.5
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  • 3. Empirical Results
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  • Most Affected Products, Budget Effects, 2001
    • Motor cars, vehicles, for transport of people (HS No. 8703)
    • Petroleum oils (2710)
    • Milk and cream (0402)
    • Cane or beat sugar (1701)
  • Most Affected Products, Trade Effects, 2001
    • Sugars and sugar confectionery (17)
    • Essential oils and resinoids (33)
    • Soap and organic surface-active agents (34)
    • Cotton (52)
    • Carpets (57)
    • Fabrics (60)
    • Cars, trucks, motorbikes (87)
    • Furniture, bedding, mattress (94)
    • Toys, games and sports requisites (95)
    • Fabrics (HS No. 60)
    • Apparel and clothing (61 and 62)
    • Other textile articles (63)
    • Footwear (64)
  • 4. Conclusions and Policy Implications
    • Overall, moderate trade effects at aggregated level, but considerable effects for limited number of products at disaggregated level
    • Domestic producers who compete with EU imports might face a decline in their business, local consumers and firms who purchase machinery or intermediate goods for production might benefit
    • Significant decline in customs revenue (government revenue) in some West African countries
  • Limitations of the Study
    • Partial equilibrium approach excludes various important effects of economic integration, for example:
      • inter-sectoral linkages
      • income effects
      • economies of scale
    • These further effects might enhance GDP growth rates in West African countries
      • higher GDP implies higher imports (increase in trade) and
      • higher import duties (from non-EU imports)
  • Limitations of the Study, cont’d. Important assumption in the model: perfect competition
    • Might not be appropriate for small countries, such as Gambia or Guinea-Bissau
    • If European exporters have significant market power and are “pricing to market”, there might be
      • a transfer of rents from African governments (customs revenue) to European exporters (higher export prices),
      • no trade creation or diversion effects, and
      • consumers (producers) in Africa do not benefit
  • Policy Implications
    • Need for comprehensive adjustment of institutions and policies in West Africa
      • Government effectiveness (e.g. quality of bureaucracy, credibility of government policy)
      • Rule of law
      • Control of corruption
      • Effective competition policy
    • Do EPAs support (further) regional integration in Africa?
    • Can ECOWAS countries agree on a regional EPA with the EU (diverging interests LDCs/non-LDCs)?
    • Alternative sources for government revenue, if EPAs come into force? (effective VAT? EU offer to compensate lost tariff revenue?)
  •