Politically Optimal Tariffs : An Application to Egypt
Egyptian economic history has been influenced by the import-substitution industrialization approach to development, dating back to Gamal Abdel Nasser's Pan-Arabic and socialist movement in the 1950s. Two major waves of liberalization have mark...
| Main Authors: | , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2002/09/2004283/politically-optimal-tariffs-application-egypt http://hdl.handle.net/10986/19278 |
| Summary: | Egyptian economic history has been
influenced by the import-substitution industrialization
approach to development, dating back to Gamal Abdel
Nasser's Pan-Arabic and socialist movement in the
1950s. Two major waves of liberalization have marked the
government's efforts to rationalize and modernize the
economy-the Infitah (opening) promoted by Anwar Sadat in the
1980s, and further trade and privatization efforts by Hosni
Mubarak in the 1990s. Nonetheless, the extent of trade
liberalization does not compare well with similar countries.
Despite a decade of liberalization, the trade regime is
characterized by deliberate and gradual reforms. By 1999
these reforms had led to average tariffs close to 30
percent, with high dispersion and escalation, well above
those in comparable countries. provide a political economy
analysis of the difficulties of liberalizing tariffs in
Egypt in general, and in its specific industries. They
present the theoretical and empirical models and discuss the
results. The authors also explore the potential effects of
the Euro-Med agreement for Egypt The authors provide a
political economy analysis of the difficulties of
liberalizing tariffs in Egypt in general, and in its
specific industries. They present the theoretical and
empirical models and discuss the results. The authors also
explore the potential effects of the Euro-Med agreement for
Egypt. The political economy analysis of the Egyptian tariff
structure identifies two sets of highly protected sectors.
Overprotected industries are defined as those with actual
tariffs at least 25 percent higher than what is predicted by
the political economy variables. The political determinants
can be divided into two groups: the lobbying and
counter-lobbying forces. First, the lobbying strength of
specific capital in each sector is proxied by the degree of
industry concentration, the labor-capital ratio, and the
import penetration ratio. Second, counter-lobbying in factor
or input markets is proxied by wage level, degree of
processing in the industry, and degree of intra-industry
trade. Using this methodology, the authors identify two sets
of products: six products where tariff cuts will not be
politically costly, and six where it will be politically
costly, In both cases, lowering tariffs will improve
resource allocation and efficiency in the industries
involved. The prospects of a free trade area with Europe
should also help reduce tariffs in sectors where a high
share of production is exported or imported from Europe. If
products are exported to Europe, the potential free access
to the European market should more than compensate for any
tariff reductions in the local market. On the other hand, if
products are heavily imported from Europe, the preferential
access for European exporters will tend to significantly
increase their presence in the Egyptian market. This in turn
will reduce the "protective" aspect of external
tariffs in sectors with large import penetration as
competition will be coming from Europe. The EU-Egypt
agreement includes a lengthy (19 years) structure of tariff
reduction. This structure will lead to increased effective
rates of protection for the first eight years of its
implementation, added economic distortions, and inefficient
use of resources. The Egyptian authorities may want to
consider speeding up the Euro-Med schedule of liberalization
to mitigate an increase in effective rates of protection.
Furthermore, special effort should be made to reduce
external tariffs on semi-processed and processed goods to
attenuate the expected negative effects of the rise in
effective rates of protection. More generally, to prevent
the high potential for trade diversion associated with
Egypt's high tariffs, a simultaneous reduction in
Egypt's external tariffs should accompany the EU-Egypt agreement. |
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