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Trade Liberalization, Factor Market Flexibility, and Growth : The Case of Morocco and Tunisia

AIR TRANSPORT APPAREL APPAREL INDUSTRY AVERAGE TARIFFS BANKRUPTCY BANKRUPTCY PROCEDURES CAPITAL MARKET CAPITAL STOCK COMPARATIVE ADVANTAGE COMPETITIVE DISADVANTAGE CONSTANT ELASTICITY OF SUBSTITUTION CONSUMERS CROSS-COUNTRY REGRESSIONS CUSTOMS CUSTOMS PROCEDURES DEEPER TRADE INTEGRATION DEVELOPMENT POLICY DOMESTIC PRODUCERS DOMESTIC REGULATION DYNAMIC BENEFITS ECONOMIC GROWTH ECONOMIC PERFORMANCE ECONOMIC POLICIES ECONOMIC WELFARE EFFICIENT CUSTOMS PROCEDURES ELASTICITY EXPORT PROCESSING EXPORT PROCESSING ZONES EXPORTERS FACTOR MARKETS FACTORS OF PRODUCTION FINAL GOODS FOREIGN INVESTORS FOREIGN TRADE FREE TRADE FREE TRADE AGREEMENT GDP GENERAL EQUILIBRIUM MODEL GLOBAL ECONOMY GLOBAL INTEGRATION GLOBAL TRADE GLOBAL TRADE ANALYSIS GROWTH RATE IMPACT OF TRADE IMPACT OF TRADE LIBERALIZATION IMPACT OF TRADE REFORMS IMPORTED GOODS INTERMEDIATE GOODS INTERMEDIATE INPUTS INVESTMENT CLIMATE INVESTMENT INCENTIVES LABOR FORCE LABOR MARKET LABOR MARKETS LDCS LIBERAL TRADE POLICY MACROECONOMIC MANAGEMENT MACROECONOMIC POLICIES MACROECONOMICS MARKET CONDITIONS MFN TARIFFS MIDDLE EAST NATURAL RESOURCES OPEN TRADE OPEN TRADE REGIME POLICY RESEARCH PREFERENTIAL ACCESS PREFERENTIAL LIBERALIZATION PREFERENTIAL TRADE PREFERENTIAL TRADE AGREEMENTS PRICE CHANGES PRIMARY FACTORS PRODUCTION FUNCTION PRODUCTION PROCESS PRODUCTION STRUCTURE REGULATIONS RETURN ON CAPITAL STATIC GAINS STRUCTURAL REFORMS TARIFF LIBERALIZATION TARIFF RATES TAXATION TECHNICAL CHANGE TOTAL FACTOR PRODUCTIVITY TRADE TRADE AGREEMENT TRADE DIVERSION TRADE LIBERALISATION TRADE LIBERALIZATION TRADE OPENNESS TRADE POLICIES TRADE POLICY TRADE REFORM TRADE REFORMS TRADING PARTNERS UNEMPLOYMENT UNILATERAL TARIFF LIBERALIZATION UNILATERAL TARIFF REDUCTION VALUE ADDED WELFARE GAINS WTO
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World Bank, Washington, DC
Middle East and North Africa | Tunisia | Morocco
2012-06-22T14:29:47Z | 2012-06-22T14:29:47Z | 2006-03

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.

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