Trade liberalization in the Mediterranean countries: a general equilibrium analysis

The Euro-Med agreements draw a scheme where free trade flows from each Partner towards the EU and vice-versa in a hub and spoke fashion. The liberalization takes place in two subsequent phases, to promote some industrial development of the Mediterranean partners before full liberalization of European exports into their markets is achieved. This study provides a general equilibrium analysis of this liberalization scheme, separately addressing the two phases of the liberalization process. Moreover, alternative model specification are tested in order to provide some insight into the robustness of results. The outcome of the simulation stresses the welfare—improving impact of liberalization for the Mediterranean countries, while the effect on the EU is negligible. An appraisal of the potential detriment to the new EU members is also provided, suggesting virtually no harm to these countries arising from the Euro-Med Partnership. The benefits for the North African economies are especially large in the specification with capital accumulation.