1. Thirteen Annual short Course on Global Trade Analysis, Crete GTAPGTAP

2. Introduction  Identification of Problem: The Choice Development Strategies in Developing African Countries  Research Questions: Free Trade or Other ways? How can the employment of unskilled labor affect the development strategies?

3. Thirteen Annual short Course on Global Trade Analysis, Crete Group 1Extension Less than Full Reciprocity between EU and SACU  Motivation: Look deeper the question of Policy space  How?  Less than full reciprocity scenario  One of the element of the article XXIV of the GATT concerning the FTA

4. Thirteen Annual short Course on Global Trade Analysis, Crete We focus this point on the Welfare effect? Global welfare decreases for EU and South Africa compared to the FLS. But….this impact becomes positive for the other regions in Africa, (bwa, RofAf, Naf) How explained it? –Let’s Look what could we learn from the welfare decomposition?

5. Thirteen Annual short Course on Global Trade Analysis, Crete Essentially, ….Better Allocative efficiency effects BotswanaXSCEU 6 crops45,4542,72-22,23 7 aag-5029,85-7,37 8 mine050,63-99,82 9 food23,5612,02-15,131 10 tex200-82,6-40,93 11 hman64,7030-24,8 12 lman-187,25,38-72 Better allocative effects explain the welfare gains for Botswana and XSC, especially for Crops, food, tex and hman sectors. Ceteris Paribus, transfers between EU and the other regions to Btw For XSC, Huge gains come from ToT effect, net improvement Important tax pool effect for Botswana (+45%) Allocative efficiency effect Variation vis a vis the Full Liberalization Scenario (in %)

6. Thirteen Annual short Course on Global Trade Analysis, Crete LTFR could also provide more space for diversification LTFR could give more flexibilities for diversification in Botswana but also for South Africa

7. Thirteen Annual short Course on Global Trade Analysis, Crete Unskilled Labor Change in SA ($,US)

8. Thirteen Annual short Course on Global Trade Analysis, Crete Change of Uns Labor (000),Exp (mi) and Imp(mil) in SA

9. Thirteen Annual short Course on Global Trade Analysis, Crete Conclusion LTFR Full reciprocity will be very costly for Africa in terms of revenue losses, adjustment costs associated with de-industrialisation and its undermining effect of regional integration. With LTFR, the EU RSA FTA will produce welfare gains for the EU and South Africa BUT ALSO FOR BOTSWANA It would double the allocative efficiency in Botswana LTFR Agreement could reduce the “beggar my neighbour outcome”

10. Thirteen Annual short Course on Global Trade Analysis, Crete Group 2 Extension  Changing Revenue Sharing Agreement between South Africa and Botswana

11. Thirteen Annual short Course on Global Trade Analysis, Crete Table 1: Welfare Changes in South Africa and Botswana CountryBase Scenario Simulation South Africa 1729,471651,15 Botswana -71,522,28 Table 2: Tax Pool Changes in South Africa and Botswana (%change) CountryBase Scenario Simulation South Africa 77,59-77,59 Botswana-77,8177,81

12. Thirteen Annual short Course on Global Trade Analysis, Crete Table 2: Share of Unskilled Labor by Sector in Botswana SectorBase Scenario(% change) Simulation(% change) Change in Use Share of Factor Intensity (%) Crops 0.39+39 Livestock -0.73-40 Food -0.20-47 Textiles 0,490,53+70 Heavy Manu -0,68-0,58+50 Light Manu -1,97-1, 82+52 Construction 0,40-0,34-45 Services 3.040,82-29

13. Thirteen Annual short Course on Global Trade Analysis, Crete Table 4: Percentage Changes in the Price of Unskilled Labour in Botsawana CountryBase ScenarioSimulation %Price Change-1.204-1.35 Change in Labour Use 1.1183.88 % Change in the Qty of Labour 5.7535.94

14. Thirteen Annual short Course on Global Trade Analysis, Crete Group 3 Extension  South – South Trade in Africa  SACU + MERCUSOR Versus

15. Thirteen Annual short Course on Global Trade Analysis, Crete Welfare and Real GDP

16. Thirteen Annual short Course on Global Trade Analysis, Crete Exports Destinations

17. Thirteen Annual short Course on Global Trade Analysis, Crete Changes in output & VA

18. Thirteen Annual short Course on Global Trade Analysis, Crete Employment of Unskilled labour Increase in employment of unskilled: –XSC- EU-RSA FTA –Bots & xsc- SACU- MER FTA –All regions –Africa FTA bwaxscsadxaf EU-RSA-0.112.59-0.06-0.01 SACU-MER0,170,90-0,010,00 African FTA5,621,733,270,64

19. Thirteen Annual short Course on Global Trade Analysis, Crete Group 4 Extension  Introducing Technological Change

20. Thirteen Annual short Course on Global Trade Analysis, Crete The experiment: FTA + technical change A technical change in tradable sectors, i.e. crops, animal agricultural, food, textile, light and heavy manufactures, and services Why? –Productivity in developing countries, especially in SSA, is low compared to that of developed countries => room for gains –To see whether technology can improve FTA outcomes for third countries

21. Thirteen Annual short Course on Global Trade Analysis, Crete Welfare effects FTA+10%TC FTA only

22. Thirteen Annual short Course on Global Trade Analysis, Crete Structural change in Bwa and SA? –qva increases in tex, lman (and cns) (table) –this due to expansion effect (qo) –Expansion b/c increased domestic but most importantly foreign demand (for Bwa, exports to SA “entirely”) –Note e.g. that SA exports and imports in lman increase, and SA important export market for Bwa (differentiated comm, (Armington))

23. Thirteen Annual short Course on Global Trade Analysis, Crete Why do exports increase? For Bwa and SA substitution effect behind demand for their exports (tex, lman). But for cns from Bwa and SA to SA the effect due to expansion only. Note, SA world market share is small (except for aag) and Bwa share is small indeed).

24. Thirteen Annual short Course on Global Trade Analysis, Crete Supply side effects? Producer prices, in Bwa and SA, decrease and therefore demand increases But, e.g., why decrease in ps (lman, xsc) < 10% ? –Tech change affects pfe and ps  increase in output demand –Output expansion (61 %) requires more inputs –Pushes pfe up Expanding sectors: pfe = 25 - 36 percent (but pfe (unsklab) = -1,6 to -3,2 percent) Primary resources mainly drawn from crops, aagr and services, + from pool of unemployed unsklab ps (lman,xsc)-0,07 qo (lman,xsc)0,61 qfe (capital,lman,xsc)0,21 pfe (capital,lman,xsc)0,27 qva (lman)0,46

25. Thirteen Annual short Course on Global Trade Analysis, Crete Key results South Africa: –Endowment effect is due to a large increase in unskilled labor employment (+42%) Services (53%), heavy manufactures (14%) Botswana: welfare gain, dominated by TOT effects: –BWA import shares from SA are very large (70-85%) => the decrease in SA prices is creating this positive TOT effect –But also an endowment effect from increased unskilled labor employment: services (61%) and construction (23%)

26. Thirteen Annual short Course on Global Trade Analysis, Crete Group 5 Extension  Introducing New Closure

27. Thirteen Annual short Course on Global Trade Analysis, Crete Alternative unskilled labor closures Original closure: unemployment in Africa. Alternative closure: full employment in Africa. Does this affect the results of previous extensions? More importantly, does this affect our conclusions about trade and development? Welfare: Gains greatly diminished for South Africa

28. Thirteen Annual short Course on Global Trade Analysis, Crete Differences in Welfare Only significant effect: endowment effect (US$ 1,3 billion vs US$ 0). Services: most significant difference. Expansion effect. Industry: impact also diminished. Note: services are quite important in cost structure of firms (7%-23%).

29. Thirteen Annual short Course on Global Trade Analysis, Crete Domestic market dominates effect Expansion effects: domestic market through intermediate demand. (94% of increased services is explained by domestic demand). Services account for 57% of unskilled labor employment. But why did services decrease with full employment ? Price of services went up (0.2%), driven by full employment.

30. Thirteen Annual short Course on Global Trade Analysis, Crete Major findings  Using a trade liberalization exercise, main effect on welfare comes from a non-tradable good (GE vs PE).  Closure really matters in this context

31. Thirteen Annual short Course on Global Trade Analysis, Crete Conclusion