Bridging the gap: the role of trade and FDI in the Mediterranean Discussion of - Export catching up in the Mediterranean countries: long term trends and prospects by J.R. Chaponni

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Bridging the gap the role of trade and FDI in
the MediterraneanDiscussion of - Export
catching up in the Mediterranean countries long
term trends and prospectsby J.R. Chaponnière and
M. Lautier- Do Euro-med agreements improve
democracy and the quality of institutions in EU
partner countries?by C. Duc and E. Lavallee-
In search of development along the Southern
border The economic models behind the
Euro-Mediterranean Partenership and the European
Neighbouring Policyby I. Martin Discussant
Sergio de Nardis

• Naples Castel dellOvo June 8-9, 2006

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Three papers on Med countries different (though
related) questions, different approaches, but
conclusions share a common (negative) flavour

• Different questions addressed in the 3 papers
• 1. C-L paper have the (Southern) Med countries
  upgraded the quality of their export baskets
  (converging towards those of the industrialized
  economies) during the last 35 years (a period
  which includes the EU-Med agreements)?
• 2. D-L paper have the EU-Med agreements
  improved the quality of economic governance and
  institutions in the Med countries?
• 3. Martin paper has the model underlying the
  Euro-Med Partenership (just let the market
  forces work freely trade liberalizationstructura
  l reforms) proved adequate, delivering tangible
  results in the Med economies?
• But conclusions have much in common unfavourable
  average performance (with some exceptions) of the
  Med countries and negative evaluation of the
  economic and political achievements after the
  Barcellona Declaration and the subsequent
  bilateral trade agreements(mildly negative in
  D-L, strongly negative in Martin).

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C-L paper main findings wrong product
specialization in the Med countries?

• On the grounds of an indicator of the level of
  quality/productivity of the export basket of the
  Med economies (similar to the one used by
  Hausmann-Rodrick, 2003) C-L find
• Contrary to what observed in other emerging
  countries (East-Asia, Latin America, Nic-1,
  Nic-2), the quality/productivity level of the
  export baskets of the (8) Med countries didnt
  improve during the period 1967-2003 quality
  indicators were worse in 2003 than in 1967
  exceptions were Israel and, to a lesser extent,
  Turkey and Egypt.
• Contrary to what observed in other emerging
  economies, increase in propensity to export
  manufactures (X/GDP) has been accompanied by no
  clear trend of quality upgrading in the Med
  countries (actually in Tunisia and Morocco
  quality fell).
• Not considering primary products based industries
  and textile-clothing, no export diversification
  in the manufacturing industry was observed (with
  the exception of Turkey and Israel).
• Since 1994, in the period EU-Med agreements came
  into force, export niches were concentrated in
  products for which EU demand has been growing
  less than the average.

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Some observations on C-L paper

• The Chaponnière-Lautier/Hausmann-Rodrick
  indicator is interesting. A doubt on the capacity
  to disentangle properly quality differences. Is
  it a too raw measure? Example footwear in
  considered a low quality/productivity product
  (this industry is large in low productivity
  countries), but there are high and low quality
  footwear industries, with the former located in
  industrial (high productivity) countries.
• When constructing the export niches, primary
  products intensive industries and
  textile-clothing are excluded not clear why,
  since Med countries have important comparative
  advantages in these sectors how would the
  picture be considering also these products?
• These observations do not impugn the general
  conclusion findings of no appreciable quality
  upgrading and of no product diversification in
  the period 1967-2003 are clear.

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D-L paper main findings Instituion building
was hardly affected by EU-Med agreements

• On the grounds of econometric estimates (within
  sample comparisons and difference-in-differences
  ), D-L test the influence of bilateral
  agreements between EU and Med countries on
  democracy (political rights and civil liberties)
  and governance (corruption, red-tapes, law and
  order) they find
• Uncertain (unclear) effects of the agreements on
  general governance, but positive influence on the
  component of governance represented by judicial
  systems.
• No effect at all of the EU-Med agreements on the
  indicator of democratic principles and
  institutions.

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Some observations on D-L paper

• The period of EU-Med agreements is too short
  (just Tunisia and Israel signed in 1995, Syria
  signed in 2004) and the implementation too slow
  to be able to detect some effect on democratic
  variables that show very small time variability.
  
• The authors recognise this potential problem and
  propose difference-in-differences estimation,
  based on the testing of a treatment effect
  (EU-Med agreements) controllling for a
  non-treated group they rely their conclusions
  mostly on these estimates.
• Yet, the experimental group (the Med economies)
  and the control group are heterogeneous a
  problem not eliminated by introducing extra
  independent variables. In the control group there
  are Mexico, the accessing Eastern countries,
  Asian economies, Latin American countries all
  very different from the Med ones morevoer they
  are affectd by free-trade agreements with
  economies other than the EU (e.g. Nafta,
  Mercosur) or by different (deeper) forms of
  agreements with the EU (Eastern countries).
• Presumption on the grounds of these
  observations, one could deem questionable the
  positive significant effect on law and order,
  detected for the treatment EU-Med agreements.
  

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Martins paper main findings Failure of the
model underlying EU-Med partnership as to both
economic and political targets

• Ivàn Martìns critical assessment of the
  EU-Mediterranean partnership experience hinges on
  poor achievements in terms of economic growth
  and civil rights in Med countries. Main causes of
  the failure are
• Agriculture excluded from FT agreements.
• FT agreements substituted former preferential
  agreements, in force since the mid 70s no value
  added, on the contrary value subtracted since
  the vanishing of the Multifiber agreement
  suppressed preference for Med countries textile
  products.
• No significant FDI flows in the Med economies (no
  South-South integration, not reduced political
  prejudice, governance uncertainty).
• Insufficient unilateral funds (MEDA about 3 euro
  per person and per year in the receiving country
  in 1995-2002).
• Asymmetry of the FT agreements since they
  regarded mainly the opening of the Med countries
  to EU industrial products, while agricultural
  goods were still excluded and Meds industrial
  goods had already granted free access in the EU
  market under previous provisions no reallocation
  of Meds resources to new sectors likely short
  run harm, with benefits (if any) only in the very
  long run.

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Martins paper main findings not much more
than this can be expected from the European
Neighbourhood Policy (ENP)?

• The ENP approach (based on the EU accession
  model) is
• Promising on paper
• ENP replicates the accession process approach
  that proved effective in the case of
  Central-Eastern countries pre-defined results
  (adoption of the EU legislation for the internal
  market) whose gradual realization is monitored by
  the EC that plays a technical role in supervising
  and assessing advancements.
• In principle, full access to the EU markets for
  all products (even agricultural products) and
  free movement of people.
• Participation in the EU Regional policy (cohesion
  funds).
• quite uncertain in practice
• Adoption of the EU legal framework is partial,
  free flow of workers removed from Action Plans,
  full access of agricultural goods subject to
  negotiation, increase of funds only marginal
  w.r.t. current MEDA.
• Incentives to reform are not comparable with
  those of the Central-Eastern economies that, in
  exchange of the sovereignity loss, had/have the
  prospect of a real accessing in the EU (and the
  single market benefits) it is not the same for
  Med countries.

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Summing up what can be learned from these
useful papers

• Substantially confirmed evidence coming from
  other authors (e.g. Ferragina, Giovannetti,
  Pastore, 2005) about the existence of large gaps
  between potential and actual trade of Meds
  vis-à-vis EU despite post-Barcellona FT
  agreements, persistent and increasing potential
  of unexploited trade integration between Med and
  EU didnt accelerate, quite the opposite it
  slowed down.
• These agreements are not only young, they are
  also being implemented extremely slowly only
  Tunisia will be able to abate tariffs by 2010
  difficult to detect trade creation effects (if
  any) with such a slow pace trade liberalization
  is much late w.r.t. Barcellona schedules
• Generally, it is unwise to expect much from this
  kind of agreements, particularly in terms of
  institution building and governance upgrading
  barring the euro rethoric of solemn declarations,
  there are no enforcement and no incentives to
  make changes that are awkward as those involving
  institutions and governance.

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and what opinion I formed from reading

• Unfairness. Med FTAs are umbalanced agreements
  exclusion of agricultural products, where Meds
  have comparative advantagesl. NOTE oppostion to
  liberalization is not from the rich farmers of
  North Europe (usually the fiercer opponent to
  changes of CAP), but from the olive belt of the
  EU, i.e. the countries that are mostly interested
  in deepening North-South trade, whose
  agricultural products are in direct competition
  with those of the Med economies.
• Hub-and-spoke. The form of bilateral agreements
  discourages intra-Meds integration, particularly
  in manufacturing (since the main suppliers of
  these goods are the EU countries) at best these
  agreements may lead to a hub-and-spoke system, in
  which Meds remain isolated trading partners not
  much to gain for a peripheric country in this
  perspective weak capacity to attract Fdi.
• Crucial, the global environment. Unfavourable
  environment. Eastward enlargement in the 2nd half
  of 90s was a too important process for the
  countries involved. Effective institutional
  changes and strong commitment to reform (due to
  the actual working of Europe Agreements
  perspective of joining EU made rapid adoption of
  Acquis Communitaire possible) attracted resources
  and trade, with diversion effects elsewhere
  (crowding out Med goods and territory) no
  surprise that any other trade integration
  process, involving EU, was negatively affected by
  enlargement.
• Bottom line start again the experiment of Med
  integration from scratch, bearing the Europe
  Agreements experience in mind. But the point is
  how feasible is to mimic that experience without
  the real perspective of EU accession?