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Trade Liberalization and the Costs and Benefits of Informality an Intertemporal General Equilibrium Model for Egypt

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  • Abeer Elshennawy

    () (The American University in Cairo)

  • Dirk Willenbockel

Abstract

This research aims at assessing the costs and benefits of informality for the Egyptian Economy as trade is liberalized. The analytical framework for this assessment is an intertemporal general equilibrium model. The key questions this research will address include to what extent will informality reduce the transitional unemployment to trade liberalization in the short run which typically arises due to wage rigidities in the formal sector coupled with asymmetric adjustment of contracting and expanding sectors and what are the implications for welfare given the lower productivity associated with increased informal employment? In this respect the research will seek to assess the overall balance of the costs and benefits of informality, filling in an important gap in the empirical literature on trade liberalization and informality in general and in the literature on trade policy reform in Egypt in particular. Second what are the implications of trade liberalization for informal employment and the formal/informal wage gap in the presence of rigid wages in the formal labor market? The purpose of this exercise is to highlight the interaction between trade liberalization and labor market rigidities as drivers of informality.

Suggested Citation

  • Abeer Elshennawy & Dirk Willenbockel, 2014. "Trade Liberalization and the Costs and Benefits of Informality an Intertemporal General Equilibrium Model for Egypt," Working Papers 888, Economic Research Forum, revised Dec 2014.
  • Handle: RePEc:erg:wpaper:888
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    References listed on IDEAS

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    1. repec:eme:ceapzz:s0573-855520140000293008 is not listed on IDEAS
    2. Serdar Birinci, 2013. "Trade openness, growth, and informality: Panel VAR evidence from OECD economies," Economics Bulletin, AccessEcon, vol. 33(1), pages 694-705.
    3. Elshennawy, Abeer & Robinson, Sherman & Willenbockel, Dirk, 2016. "Climate change and economic growth: An intertemporal general equilibrium analysis for Egypt," Economic Modelling, Elsevier, vol. 52(PB), pages 681-689.
    4. Laura Munro, 2011. "A Literature Review on Trade and Informal Labour Markets in Developing Countries," OECD Trade Policy Papers 132, OECD Publishing.
    5. John Cockburn & Luc Savard & Luca Tiberti, 2014. "Macro-Micro Models," Contributions to Economic Analysis,in: Handbook of Microsimulation Modelling, volume 127, pages 275-304 Emerald Publishing Ltd.
    6. Benedikt Heid & Mario Larch & Alejandro Riaño, 2013. "The Rise of the Maquiladoras: A M ixed Blessing," Review of Development Economics, Wiley Blackwell, vol. 17(2), pages 252-267, May.
    7. Bosch, Mariano & Goñi-Pacchioni, Edwin & Maloney, William, 2012. "Trade liberalization, labor reforms and formal–informal employment dynamics," Labour Economics, Elsevier, vol. 19(5), pages 653-667.
    8. Robinson, Sherman & Yunez-Naude, Antonio & Hinojosa-Ojeda, Raul & Lewis, Jeffrey D. & Devarajan, Shantayanan, 1999. "From stylized to applied models:: Building multisector CGE models for policy analysis," The North American Journal of Economics and Finance, Elsevier, vol. 10(1), pages 5-38.
    9. Rana Hendy & Chahir Zaki, 2013. "On informality and productivity of micro and small enterprises: evidence from MENA countries," International Journal of Entrepreneurship and Small Business, Inderscience Enterprises Ltd, vol. 19(4), pages 438-470.
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