- Oleh Havrylyshyn
- Published Date:
- September 1997
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The recent reform initiatives and policy challenges for some of the countries are described in El-Erian and others (1996).
E1-Erian and others (1996), p. iv. Israel and Turkey are not included in that study. See also the World Bank study Claiming the Future(1995b), and a recent speech of Michel Camdessus (1996). The discussion in this section draws upon information from the above studies, as well as more recent data from Havrylyshyn (1996).
Havrylyshyn (1996). Lebanon also falls below the fit in this regression, but its 1995 ratio of 83.6 percent is far below historical values of 150 percent to 200 percent. In that study, East Asia excludes Hong Kong and Singapore, considered already too far advanced to be comparators or competitors for the Mediterranean countries.
E1-Erian and Fischer (1996), El-Naggar (1992), and Zarrouk (1992) argue the ratios are too low. Hoekman and Djankov (1996a), citing studies of Yeats (1996), and Ekholm, Torstensson, and Torstensson (1995), wonder if the natural ratio can be much higher. This paper explores this question further, tending to side with the first group of observers.
Central European data are from Hoekman and Djankov (1996a).
This is not shown in Figure 1, but it could be reflected as an expansion of output and a move to a higher isoquant for comparative advantage goods, or as a contraction of output and a move to a lower isoquant for comparative disadvantage goods.
On this, and much of the rest of this section, we draw on the review study by de Melo and Panagariya (1993).
We note only a handful of works that are also of some direct relevance to the analysis of the Mediterranean region: Hoekman and Djankov (1996a and 1996b) and Lawrence (1995 and 1996) detail the dynamic gains from the partial free trade of the MEDA and outline the conditions under which it could develop into global liberalization. Shafik (1995) describes how intraregional trade arrangements might be made more successful than in the past; similar arguments are given for Latin America by Primo Braga, Safadi, and Yeats (1994). All these authors put the “pro” argument in conditional terms, for example, listing what policy steps must be taken to ensure that the partial free trade agreement maximizes benefits and minimizes costs.
Bergsten (1996) takes up the theme explicitly with his proposal for a “Grand Bargain” among the parties that, whatever the progress by blocs, global free trade is fixed as the goal for 2010, or some such date. Others have also proposed a target date, and it has been recently condoned by Bhagwati and Panagariya (1996) as “essential to remove the ‘spaghetti bowl’ of barriers.”
This section draws upon the analysis of Havrylyshyn (1996).
Defined and calculated in Havrylyshyn (1996).
A third, more subtle reason may be that trade deflection occurs: as the EU partner has lower MFN tariffs, imports can come from lower-cost third sources via the EU and be exported to the Mediterranean partners. Rules of origin to prevent this are of course foreseen, but as Schiff (1996) points out, producers in the lower-tariff country can export more to the new partners and replace those exports with imports from third parties.
The list is in some sense a composite, which Lawrence characterizes nicely, but we also draw upon the discussion in the works cited in footnote 1, as well as Page and Underwood (1995) and Primo Braga, Safadi, and Yeats (1994).
This is often but not always the case. Haddad and Harrison (1993) have found mixed results for Morocco on whether foreign or domestic investors bring a greater efficiency to a country’s production and marketing techniques.
To account for the possibility that, in many of these countries, a few products have very high RCA values and a large number have nearly zero values, which biases upward any correlation, we calculated the correlations excluding RCA values below 0.10 and above 5.0. The much lower correlations, ranging from 0.336 for Egypt to 0.657 for Syria, with only Algeria and Israel above 0.80, suggest a significant dynamic in the structure of comparative advantage.
A further important measure of flexibility to trade adjustment is the intra-industry trade (IIT) index, higher values of which are considered to reflect better prospects for intra-regional trade expansion of similar countries (see Figure 4). Havrylyshyn (1996) shows calculations for the IIT in the Mediterranean. Only Israel has values comparable to East Asia—of 50–60 percent; Turkey and Tunisia have medium levels (20–30 percent); and all others still have very low values, like most developing countries.
DeRosa (1996), writing about the ASEAN situation where formal intercountry preferences are not substantial, attributes the successful and high degree of intraregional trade to ASEAN countries’ strategy of “open regionalism.”
Parenthetically, François (1996) describes how important it is for Mexico’s credibility in NAFTA that it be a strong and committed partner.