Impact of alternative regional trade arrangements on the Ethiopian economy

Abstract

The Common Market for Eastern and Southern Africa (COMESA) is a Free Trade Area (FTA) regional trade agreement in Africa. Currently, Ethiopia is negotiating to join COMESA FTA. This study assesses the impact of three regional trade arrangements, COMESA FTA, customs unions, and the European Partnership Agreement (EPA) on the economy of Ethiopia. The analysis is based on a static Global Trade Analysis Project (GTAP) model, version 9 database. Unlike previous studies, the customs union scenarios are designed at the detailed Harmonized System (HS) level. COMESA FTA (scenario 1) with standard GTAP model results in a welfare loss for Ethiopia due to negative terms of trade and investment-saving effect, but with unemployment closure (scenario 2); Ethiopia enjoys a welfare gain mainly due to endowment effect. In scenario 3 (COMESA customs union) and scenario 4 (European Partnership Agreement), Ethiopia loses due to negative terms of trade and investment-saving effect. There is a large increase in demand for unskilled labor force in Ethiopia by around US$23 million, US$112 million, and US$43 million for scenario 2, 3, and 4 respectively. Moreover, there is a positive output effect for oilseeds, leather, and basic metals across all scenarios. The world, as a whole, enjoys welfare gains with COMESA FTA (scenario 1 and 2). However, with scenario 3 and 4, there is an overall welfare loss. There is no strong reason for Ethiopia to move to the customs union, and the EPA in the short run. Therefore, a transition period is necessary, but it is recommended for Ethiopia to join COMESA FTA.

The trade effects of the African Continental Free Trade Area: An empirical analysis

“…There are several studies that examine the trade effects of established regional economic integration schemes in Africa (Amogne & Hagiwara, 2021; Geda & Hussien, 2015; Geda & Kibret, 2008; Inançli & Addi, 2019). However, there are only a few studies that tried to examine the trade effects of the AfCFTA (Afreximbank, 2018; Mold & Mukwaya, 2017; UNECA, 2012; UNECA & CEPII, 2021; Willenbockel, 2013; World Bank, 2020).…”

Trade, GDP value adding activities and income inequality in the East African community

“…Their findings seem to recognize the on-going efforts to leverage integrated economic development through EAF. Based on the results of analysis, the current study underscores the need to address the issue of huge disparity in GDP per capita which can be quite challenging but as Amogne and Hagiwara [84], argue RTAs can result into positive distributional effects. Of course this will depend on the pre-existing trade share between member countries: the larger the share is, the larger the net trade creation and the smaller the trade diversion effect.…”

“…Their role in economic development is broadly recognised in the literature. Agriculture, for example, has already significant contribution to the economic prosperity of both developed and developing countries and its role in economic development is widely acknowledged in the literature [84][85][86][87][88]. There is also clear evidence that a thriving manufacturing sector increases productivity and thereby enhancing economic growth.…”

How Can Tariff Elimination and Trade Facilitation Affect East African Economies?

“…For the specific case of the AfCFTA, there is empirical evidence that the agreement positively affects trade flows (Abrego et al, 2019; Bakouan et al, 2022; Ejones et al, 2021; Geda & Yimer, 2022; Gondwe, 2021; Oyelami, 2021; Riedel & Slany, 2019; Wonyra & Bayale, 2022) investment (Abrego et al, 2020; Mold & Mukwaya, 2016) consumer welfare (Fofack et al, 2021; Fouda Ekobena et al, 2021; Fusacchia et al, 2022). However, the literature on the COMESA free trade agreement, however, points to a welfare loss for Ethiopia as a result of the agreement (Amogne & Hagiwara, 2021).…”