Regionalism and Labour Market Structure: A CGE Analysis of UEMOA Customs Union

In this study, we analyse the impact of the creation of a customs union among UEMOA (Western African Economic and Monetary Union) countries, with a special emphasis on the labour market structure. The implementation of the customs union reform translated in most of these countries, into a greater openness, even with third party countries. This greater openness raises concerns in these countries as regards its potential impact on welfare, production and employment. In contrast to previous papers, we relax the assumption of a perfect functioning of the labour market. We consider the presence of a dualism in the labour market and the downward rigidity of the wage of formal workers. Using a multi- country CGE model, we find that this rigidity could reduce significantly the gains of the customs union. Our simulation results suggest that the costs of this rigidity may reach 45%, as a proportion of the welfare gain obtained without rigidity. Copyright 2004, Oxford University Press.