Impact of the Association Agreement with the EU on Imports into Tunisia an Estimation of the Gravity Model

Abstract

The paper aims to provide a rational and objective assessment of the impact of trade integration between Tunisia and the European Union on imports of industrial products, following the 1995 Association Agreement. In this study, we adopt a multi-step approach. After an analysis of the stylized facts, a gravity model is applied and estimated in several variants to assess the determinants of trade. The results obtained are used to calculate creation and diversion of trade between Tunisia and the European Union. We achieved the following main results: coefficients of the traditional variables of the gravity model have generally expected signs; customs tariffs, transport costs which are measured by distance, good governance, tend to influence the development of bilateral trade flows. The free zone-trade between Tunisia and the EU has not been favorable for Tunisia and has a negative impact on the Tunisian economy because the effects of trade diversion are more important than trade creation effects. The findings from of this study may prompt policymakers to open up to other markets and consider diversifying them. They may also lead to the establishment of a stand-by arrangement, the revision of the 1995 Association Agreement and above all, the use of the WTO safeguard clause as an emergency measure to cope with this rapid increase in imports, particularly from certain trading partners, and to avoid traffic detour to the benefit of European products and to the detriment of products from the rest of the world. This article presents for the first time a quantification of the creation value and trade detour at constant price in Tunisia using an in-depth empirical analysis, and thus contributes to the existing literature studying the impact of the Association Agreement between Tunisia and the EU.