Agricultural Trade Liberalization between the EU and Mediterranean Partner Countries: An Impact Analysis

In this paper, the impacts of an agricultural trade liberalization between the EU and mediterranean partner countries (MPCs) including Turkey are analyzed by employing an Armington trade model structure for both the imports and exports of the EU. The study uses EU’s agricultural trade data at 8 digit level (Combined Nomenclature, CN) and disaggregates EU’s agricultural trade into 207 agricultural goods. In addition, the agricultural commodities, intermediate and final products are differentiated according to the WTO definitions. The global trade of EU has been disaggregated into 27 regions to distinguish the regional impacts. All Mediterranean partner countries including Turkey are explicitly included. In the import model, a nested constant elasticity of substitution (CES) function consisting of 27 import sources (regions) is employed. Similarly, the exports of EU are modeled by a nested constant elasticity of transformation (CET) function aggregator. The structure of the model assumes perfectly elastic export supplies for EU imports hence the model simulates the maximum possible change in the EU’s imports for each goods given the set of import demand and substitution elasticities. By the same token, the model simulates the maximum possible change in the EU’s exports as the export model assumes perfectly elastic import demands for EU exports.