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Trade liberalization, factor market flexibility, and growth : the case of Morocco and Tunisia

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  • Dennis, Allen

Abstract

In recent years there has been an increasing recognition of the importance of complementary policies in enhancing the benefits of a more open trade regime. This study focuses on the importance of factor market flexibility to trade reforms. Using the Global Trade Analysis Project (GTAP) model and database, the results show that the welfare impact of trade reform is contingent on the flexibility of factor markets, with higher welfare gains occurring where factor markets are more flexible, and vice-versa. Defining two extreme factor market scenarios over Morocco and Tunisia, the author finds that the welfare gains of trade reforms under conditions of flexible factor markets can be as much as six times the gains compared with a rigid factor market scenario. This is so because whereas trade reforms may improve the incentive structure for resource reallocation, the extent to which resources move from less efficient to more efficient sectors of an economy is dependent on the degree of flexibility of factor markets.

Suggested Citation

  • Dennis, Allen, 2006. "Trade liberalization, factor market flexibility, and growth : the case of Morocco and Tunisia," Policy Research Working Paper Series 3857, The World Bank.
    • Handle: RePEc:wbk:wbrwps:3857
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    References listed on IDEAS

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    5. Salehezadeh, Zohre & Henneberry, Shida Rastegari, 2002. "The economic impacts of trade liberalization and factor mobility: the case of the Philippines," Journal of Policy Modeling, Elsevier, vol. 24(5), pages 483-486, August.
    6. Bolaky, Bineswaree & Freund, Caroline, 2004. "Trade, regulations, and growth," Policy Research Working Paper Series 3255, The World Bank.
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    Cited by:

    1. Breisinger, Clemens & van Rheenen, Teunis & Ringler, Claudia & Nin Pratt, Alejandro & Minot, Nicholas & Aragon, Catherine & Yu, Bingxin & Ecker, Olivier & Zhu, Tingju, 2010. "Food security and economic development in the Middle East and North Africa," IFPRI discussion papers 985, International Food Policy Research Institute (IFPRI).
    2. Monia Ghazali, 2010. "Trade Openness, Relative Demand of Skilled Workers and Technological Change in Tunisia, 1998–2002," Working Papers 554, Economic Research Forum, revised 10 Jan 2010.
    3. Braga de Macedo, Jorge & Oliveira Martins, Joaquim & Rocha, Bruno, 2014. "Are complementary reforms a “luxury” for developing countries?," Journal of Comparative Economics, Elsevier, vol. 42(2), pages 417-435.
    4. Chun‐ping Chang & Yung‐hsiang Ying, 2008. "The Generative Power Of Air Freight In The Trade Openness – Economic Growth Nexus In African Countries," South African Journal of Economics, Economic Society of South Africa, vol. 76(3), pages 493-512, September.
    5. Stampini Marco & Verdier-Chouchane Audrey, 2011. "Labor Market Dynamics in Tunisia: The Issue of Youth Unemployment," Review of Middle East Economics and Finance, De Gruyter, vol. 7(2), pages 1-35, September.

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    Keywords

    Free Trade; Economic Theory&Research; Markets and Market Access; Trade and Regional Integration; Trade Law;
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