By Carrere Celine, Gourdon Julien, Olarreaga Marcelo
This paper builds on theoretical predictions that show that gains from regional integration are unevenly distributed between resource rich and poor countries. It explores the effects of different integration schemes in the Middle East and North Africa. The results suggest that within the Pan Arab Free Trade Agreement, there is significant trade creation for resource poor countries associated with regional integration, and no evidence of trade diversion. In resource rich countries, however, there is evidence of pure trade diversion in both resource-rich/labor-abundant countries and resource-rich/labor-importing countries. This underscores the idea that regional integration can help to spread the benefits of unevenly distributed resource wealth among the region’s economies.
This paper provides a useful application of a recent model by Venables (2011) about the trade effects of integration among resource-rich and resource-poor countries. When comparing the trade effect of different trade integration agreements, namely in Middle East and North Africa, the authors show that most of them are trade creating, with the only exception of the Pan-Arab Free Trade Agreement. How can this affect the strategies of both resource-rich and resource-poor countries when choosing their partners in trade agreeements?