Trade Creation and Trade Diversion

Trade Creation and Trade Diversion between Tunisia and EU: Analysis by Gravity Model
Ahmed Zidi1 & Saïd Miloud Dhifallah2 Application of gravity models was carried out in the framework of the FTA between Tunisia and the EU. Thus, according to many empirical studies, the coefficients of the gravity variables have the expected signs and are generally significant: GDP variables have a positive sign, the GDP per capita variables are assigned a negative sign (although as we have mentioned above, not always), confirming the hypothesis of Linneman (1996) that the degree of openness of an economy and negatively correlated with the variable population. The sign of the coefficient of the distance is negative.
Following the results, it seems that the gravity model explains bilateral trade well. But you cannot assign the level of intra-regional trade only by geographical proximity, GDP, POP and because it finds unambiguously that membership in preferential agreements is a predisposing factor intensity of bilateral trade. If we analyze the effects of regional Association Agreement of 1995 between Tunisia and the EU we note that
there is a greater exchange after the integration period. In fact, we can say that overall association agreements Euro-Tunisian generated trade creation effect. As trade diversion vis-à-vis the rest of the world, we see that there is no significant diversion of trade to the detriment of the EU countries. This means that the agreement did not generate a negative effect in the sense of import diversion. However, there is a diversion of export. Thus, the Tunisian experience could be interesting for other Mediterranean countries, because the tariff dismantling schedules that have been negotiated are very similar to that of Tunisia. These countries can expect an effect of trade creation but several years after the implementation of the agreement and a significant increase in the protection of their domestic manufacturing industries for several years after the entry into force of the agreements. To avoid these costs it may be useful to reconsider the timing of trade liberalization set in the context of free trade agreements. Also a further reduction in tariff rates, very complex in the SEM, and customs and administrative procedures is strongly recommended. These measures should reduce distortions and trade costs and at the same time facilitate the recovery of the activity of the domestic supply. Thus it is not certain that the Euro-Mediterranean policy as it has been defined by the EU is the best way to accelerate economic integration in the Mediterranean basin. Our results show, however, that while trade creation is modest, the SEM are moving more and more towards the integration in their natural exchange zone, the EU.