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Journal of Economic Integration 2006 September;21(3) :496-525.
A Comparative Analysis of the EU-Morocco FTA vs. Multilateral Liberalization

Aziz Elbehri Thomas Hertel 

Economic Research Service, USDA
Global Trade Analysis Project, Purdue University
Copyright ©2006 Journal of Economic Integration

An applied general equilibrium model with oligopoly and scale economies, based on detailed plant-level data, is used to contrast the impacts of the Morocco-EU free trade area (FTA) to multilateral trade liberalization on Morocco’s economy. Simulation results show that the FTA agreement is likely to have adverse effects on Morocco due to: (a) deteriorating terms of trade, (b) reductions in output per firm in industries dominated by scale economies, (c) diversion of imports away from relatively low cost, non-EU suppliers, and (d) potentially adverse effects on the aggregate demand for labor which could exacerbate already high levels of unemployment. We contrast this FTA with a multilateral liberalization scenario along the lines of those proposed under the Doha Development Round and find this to be more beneficial to Morocco, despite the associated income transfer from the EU to Morocco. The difference may be attributed to: (a) lesser terms of trade losses, (b) positive scale effects, (c) non-preferential liberalization of imports into Morocco, and (d) a positive impact on aggregate labor demand and hence unemployment. We conclude that Morocco would be better off pursuing trade liberalization in the multilateral arena.

JEL Classifications: F12, F14, F15

Keywords: Applied general equilibrium | Market Structure | Trade liberalization | Developing economies | Morocco
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2. Baldwin, R.E. and A.J. Venables (1995) Regional Economic Integration, in Handbook of International Economics, volume III, G.M. Grossman and Rogoff, K. (Eds.) (North- Holland/Elsevier).
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