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The Growth and Poverty Impact on West African Countries of the ECOWAS/European Union Free Trade Agreement

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The Cotonou Agreement concluded in June 2000 between the European Union (EU) and African, Caribbean and Pacific (ACP) ended successive Lome regimes and paved the way for an Economic Partnership Agreement (EPA) consistent with the World Trade Organization (WTO) rules. Non reciprocal trade agreements which form the basis of EU and ACP trade relations are contrary to the Most Favored Nation (MFN) principle under the WTO. The aim of the EPA is to make EU and ACP trade relations consistent with WTO legal requirements. The EPA aims to create a Free Trade Area (FTA) between West Africa (WA) and the European Union (EU). Thus, countries in the sub-region are expected to open their domestic market to 75 % of the EU products over a period of 20 years. Apart from the gradual removal of barriers to trade, EU and ECOWAS agreed within the framework of EPA to design development programs to enable the region to adapt to the new trade environment created by the liberalization of trade with Europe. In our paper, the impact on West Africa of the Free Trade Agreement between EU and ECOWAS is analyzed against a baseline scenario where west african economies have already adopted the ECOWAS Common External Tariff. Compared to previous studies, our methodology adds value by combining a dynamic macro- micro multicountry model to assess the short, medium and long term impacts of the FTAs on fiscal revenues, trade balance, growth, and poverty. We simulate three realistic scenarios of 65 percent and 70 percent of market access over a period of 25 years. The first scenario involved a 70 percent liberalization of imports from EU over a period of 25 years, with 45 percent over the first 15 years. The second scenario assumes 70 percent of liberalization of imports from EU over a period of 25 years, with 64 percent during the first 15 years. Finally, the third scenario concerns 65 percent liberalization of imports from EU over a 25 years period, with 45 percent during the first 15 years.

Using Social Accounting Matrices (SAM) as accounting framework for basic data, our study uses a dynamic multi-country Computable General Equilibrium (CGE) model that takes into consideration the structure of each of the economies as well as all interactions existing between countries within the subregion. To address the poverty impact, we develop a poverty module for ten countries for which survey data was available and link it to the CGE modeling a top-down fashion. The simulation results indicate that, without any companying program, liberalizing 65 percent of imports from the EU boosts growth and contributes to reduce poverty in WA. However, WA faces more pressure when the liberalization reaches 70 percent of imports, leading to a slower growth rate and an increase of poverty.