Trade facilitation and corruption:a CGE model of Egypt

This paper extends a dynamic computable general equilibrium (CGE) model to introduce trade facilitation aspects. The contributions are twofold on both the theoretical and empirical levels. First, it attempts to explicitly model trade facilitation in two alternative ways. On the one hand, trade facilitation is considered as a pure deadweight loss and, on the other hand, as a rent-generating process that takes corruption into account. Concerning the empirical side, the tariff equivalent of red tape and related procedures are being estimated, not assumed, at the sectoral level in a companion paper and are introduced in the CGE model. The Exter model is modified and calibrated on the Egyptian social accounting matrix of 2000/2001. The results show that trade facilitation boosts exports, imports and welfare in a significant way. Yet, when the cost and the tariff equivalent effect of trade facilitation are jointly modelled, the impact of such a process is reduced. Moreover, some sectors like processed food, garments, chemicals and high value-added products witness a significant expansion more than others. When the welfare gains coming from corruption are taken into account, the elimination of administrative barriers to trade is associated with lower, though positive, gains.