Effective Protection and Investment Incentives in Egypt and Jordan During the Transition to Free Trade with Europe

This paper assesses the possible impact of a Euro-Mediterranean Agreement (EMA) on Egypt and Jordan and identifies policy options that will increase the benefits of free trade with Europe. The extent to which these countries will benefit from an EMA depends greatly on the investment response and thus on improvements in the investment climate. The latter will be determined by many factors. Three that can be affected by an EMA and are emphasized are the modalities of the tariff reduction strategy that will be pursued, the extent to which transaction costs are reduced, and upgrading the quality and lowering the costs of intermediate service inputs through greater competition. Many of the policy and institutional changes that are required are not or only in part subject to the coverage of the EMA.