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Preferential Trade Liberalisation, Fiscal Policy Responses and Welfare: A Dynamic CGE Model for Jordan

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  • Omar Feraboli

    ()
    (Technische Universitaet Chemnitz)

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    Abstract

    This paper aims at assessing the effects on the Jordanian economy of the Association Agreement (AA) between Jordan and the European Union (EU). Particular emphasis is placed on the effects on consumer welfare. The EU-Jordan AA was signed in 1997 and entered into force in May 2002. It eliminates progressively tariffs on most industrial goods imported by Jordan from the EU. Custom duties on agricultural goods and processed agricultural products are gradually and only partially eliminated. Trade liberalisation is expected to bring about a positive impact on consumer welfare through lower prices of investment and consumption goods. On the other hand, it reduces government revenue due to foregone tariff revenue. Therefore counteracting fiscal measures are required in order to offset the loss in government revenue. Therefore counteracting fiscal measures are required in order to offset the loss in government revenue. In order to capture intertemporal effects brought about by trade liberalisation on the Jordanian economy, a multisectoral dynamic CGE model is specified and calibrated. Simulation results show that the implementation of the AA raises consumer welfare in Jordan and has positive effects on all macroeconomic variables in the long-run, but it reduces consumption in the short-run.

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    Bibliographic Info

    Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

    Volume (Year): 227 (2007)
    Issue (Month): 4 (August)
    Pages: 335-357

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    Handle: RePEc:jns:jbstat:v:227:y:2007:i:4:p:335-357

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    Related research

    Keywords: Dynamic computable general equilibrium; Jordan; trade liberalisation;

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    1. Trimborn, Timo & Koch, Karl-Josef & Steger, Thomas M., 2008. "Multidimensional Transitional Dynamics: A Simple Numerical Procedure," Macroeconomic Dynamics, Cambridge University Press, vol. 12(03), pages 301-319, June.
    2. Hoekman, Bernard & Djankov, Simeon, 1997. "Effective protection and investment incentives in Egypt and Jordan during the transition to free trade With Europe," World Development, Elsevier, vol. 25(2), pages 281-291, February.
    3. Devarajan, Shantayanan & Go, Delfin S., 1998. "The Simplest Dynamic General-Equilibrium Model of an Open Economy," Journal of Policy Modeling, Elsevier, vol. 20(6), pages 677-714, December.
    4. George T. Abed, 1998. "Trade Liberalization and Tax Reform in the Southern Mediterranean Region," IMF Working Papers 98/49, International Monetary Fund.
    5. Devaragan, Shantayanan & Lewis, Jeffrey D. & Robinson, Sherman, 1990. "Policy lessons from trade-focused, two-sector models," Journal of Policy Modeling, Elsevier, vol. 12(4), pages 625-657.
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