Transcript The Euro-Med FTA and employment : a dynamic CGE model with

The Multifiber Agreement Phase Out and the
EU-China Agreement of self-limitation of
exports: impact on the Tunisian economy
International workshop, “Bridging the gap: the role of
trade and FDI in the Mediterranean”, Naples 8-9
Mohamed Ali MAROUANI
Université Paris1-Sorbonne/IEDES, DIAL and ERF
[email protected]
Presentation outline

Introduction

What happened since the 1st January
2005?

The ex ante quantitative assessment
framework

Simulations and results

Conclusion
Introduction

The MFA dismantling : a demand of developing
countries

The Agreement on Textile and Clothing (ATC) : 1995-2005

The accession of China to WTO in December 2001

Erosion of preferences for countries indirectly protected
by developed countries quotas : competition between
D.C.

Observed outcome : negative for MENA except Turkey

Better than expected : EU-China agreement June 2005
After January 2009

Developing an ex ante quantitative
assessment framework

Taking into account the dynamic
dimension of the shock,

and labor market imperfections
What happened since the 1st January 2005 ?

China increased its market share by 145% in
volume and 95% in value for products which
quotas have been removed in 2005
Table 1: Changes in the Value of Exports of textile and clothing to the EU
China
India
Turkey
45.0
16.0
3.3
Tunisia Morocco
Egypt
Jordan
-4.2
-11.4
Country
% change in
year-to-date
Jan-Sept
2004/2005
Source: The World Bank (2006)
-5.6
-9.1
The EU-China agreement of June 2005


Many complaints from the European T&C Industry
Inside the EU, heterogenous position




Producing countries vs importing
Industry vs distributors
China is a significant trading partner
Agreement imposed on ten categories of products
(among 35 liberalized): fixes the rates of growth
of Chinese exports between 8 and 12.5%

Higher than the 7.5% which the special safeguard clause
would have allowed the EU to impose
The ex ante quantitative assessment
framework

An intertemporal GE model




Households smooth their consumption (intertemporal utility
function)
Firms maximize their discounted value under the capital
accumulation constraint
A quadratic adjustment cost function
The advantages of a dynamic setting

Take into account the gradual dimension of the shock

The expectations of agents, adjustments costs and
demographics

The evolution of public and external debt

The dynamic calibration: the economy is not on its steady
state growth path
Structure of the intra-period model

The production block (nested function)

Labor market: HT, efficiency wages and public
employment

The income and expenditures block (including financial)

The foreign trade block (export demand function)

Equilibrium conditions and model closure: Macro,
Government, Foreign Trade, Labor Market.
Imperfect labor markets and efficiency
wages

Labor market segmentation

Efficiency wage theories

The imperfect monitoring model

Implementation in a multisectoral
framework
The multisectoral efficiency wages model

if
w  (1 
bif  r
qif
n
)eif  
(b jf  q jf ) L jf
j 1
i,j : sectors
f : skill
b : turn over rate
q : probability of being detected shirking
e : disutility of effort
r : discount rate
U : unemployment rate
q jf U f
e jf
The database

The SAM

Data manipulation: employment, wages,
demographic hypothesis, structure of the labor
force, etc.

Reference scenario includes the FTA between
Tunisia and the EU

Determination of the tariff dismantling schedule in each
industrial sector depending on the weight of each
product in the four lists of the Euro-Tunisian Agreement.
The dynamic calibration procedure

The economy is not on its steady-state growth path

Calibration of the macro parameters (depr, elasth, prt)

Calibration of the sectoral parameters (adjustment cost
function share parameter)

Second calibration of the macro parameters

Until we approximately attain the observed growth path of
the main macro and sectoral variables
The simulations

First scenario: a gradual decrease of
export demand from 2002 to 2004 (10%
in three years), than a decrease by 10%
in 2005 and a decrease by 20% in 2009.

Second scenario: adds to the first a
decrease of world prices of apparel
products by 10% in 2009.
Evolution of the main variables characterizing the
apparel sector in Tunisia, 2006-2020 (change in % of
the reference scenario level)
2006
2009
2015
2020
SIM1
SIM2
SIM1
SIM2
SIM1
SIM2
SIM1
SIM2
Production
-11.3
-14.9
-17.3
-32.4
-19.5
-36.7
-20.4
-38.3
Exports
-12.2
-15.8
-19.0
-35.6
-21.3
-39.9
-22.2
-41.5
Investment
-26.7
-47.6
-29.5
-57.8
-26.2
-49.6
-24.2
-45.2
Unskilled labor
-11.7
-13.7
-19.0
-36.5
-19.9
-38.1
-20.1
-38.4
Skilled labor
-12.0
-13.9
-19.5
-37.3
-20.5
-39.0
-20.8
-39.4
Highly skilled labor
-11.4
-16.0
-16.7
-30.2
-19.8
-36.6
-21.0
-38.9
Impact on the apparel sector

The textile-clothing sector is very negatively
affected by the shock

Investment is the variable that reacts the
most (due to firms expectations)

The impact of the combined shocks of export
demand and prices decreases is much
stronger

Propagation to the rest of the economy?
Effects on unemployment SIM1
Reference scenario = 1.00
1.07
1.06
1.05
Total
1.04
Unskilled
1.03
Skilled
1.02
Highly skilled
1.01
1
0.99
2006 2008 2010 2012 2014 2016 2018 2020
Years
Reference scenario = 1.00
Effects on unemployment, SIM2
1.14
1.13
1.12
1.11
1.1
1.09
1.08
1.07
1.06
1.05
1.04
1.03
1.02
1.01
1
0.99
Total
Unskilled
Skilled
Highly skilled
2006
2008
2010
2012
2014
Years
2016
2018
2020
Evolution of wage inequality sk/unsk
Reference scenario = 1.00
1.025
1.02
1.015
SIM1
SIM2
1.01
1.005
1
2006 2008 2010 2012 2014 2016 2018 2020
Years
Evolution of wage inequality hsk/sk
Reference scenario = 1.00
1.025
1.02
1.015
SIM1
SIM2
1.01
1.005
1
2006 2008 2010 2012 2014 2016 2018 2020
Years
Evolution of total investment
Reference scenario = 1.00
1.04
1.03
1.02
SIM1
SIM2
1.01
1
0.99
2006 2008 2010 2012 2014 2016 2018 2020
Years
Reference scenario = 1.00
Evolution of investment of the main
sectors
1.19
1.17
1.15
1.13
1.11
1.09
1.07
1.05
1.03
1.01
0.99
0.97
0.95
0.93
Tourism
MEI
Chim
Constr
2006
2008
2010
2012
2014
Years
2016
2018
2020
Evolution of total household consumption
Reference scenario = 1.00
0.995
SIM1
SIM2
0.985
2006 2008 2010 2012 2014 2016 2018 2020
Years
Comments

Investment increases in the exporting
sectors due to the Dinar Depreciation

Consumption decreases due to higher
unemployment

No effects on GDP
Conclusion

The MFA dismantling has negative effects on T&C
industry in Tunisia

It raises unemployment and wage inequality

The degree of substitutability between Tunisian
products and those of its competitors is one of
the main driving variables

The effects on prices could be lower than
expected
Directions for future research

Using more disaggregated data

Studying the effects of the shock on female
labor

Linking this model to a global CGE to assess
the decrease of world textile products

Introducing heterogeneity (firm and household
level) by linking this model to a
microsimulation model
Limits

The perfect foresight hypothesis

The absence of credit constraints

The representative agent hypothesis
Policy implications

Monitoring the evolution of Tunisia’s competitors exports in
the European market (degree of similarity)

Focus on the medium/high segment of the clothing market:
incentives for products with higher value-added

Promote the development of substituting activities targeted
on female labor

Take into account the MFA phase out in regional
development policies

Incentives for foreign investors who are ready to reallocate
their investments in other sectors