The Impact of Regional Economic Cooperation on the Ethiopian Manufacturing Sector: The Case of Common Market for Southern and Eastern Free Trade Area (COMESA-FTA)

Abstract

A computable partial equilibrium (CPE) model is employed to quantify the welfare implications of COMESA-FTA on the Ethiopian manufacturing sector. The results of the model indicate that the value of imports have expanded as a result of tariff elimination on imports from COMESA member countries. This increase in value of imports led to consumption expansion, implying an increase in consumer’s surplus. There is also negative budgetary implication implied by the loss in tariff revenue. The net welfare effect, which is the combined effect determined by the relative magnitudes these effects, reveals a welfare loss of 0.06% of GDP.  Over all, the static welfare effect of complete tariff removal on commodities imported from COMESA member countries appeared to be welfare depressing. However, this should be treated with caution since it does not show the dynamic effects relating to market size, efficiency gains and economies of scale that might have been attained in the long run. Moreover, this analysis focuses only on the manufacturing sector, it does not indicate the economy wide effects of complete tariff removal on imported commodities from COMESA member countries.