FEMISE held its 2007 annual conference in Marseille , France on November 22-23. The conference gathered about 100 participants from the Euro-Med region, including representatives of the 74 FEMISE members’ institutes, the European Commission and other academics and researchers. The two days conference included three plenary sessions and ten parallel sessions.The plenary sessions included speeches given by European Commission official representatives: Pierre Deusy, Commission Européenne, DG Relex, Marcus Cornaro, Directeur de EuropAid, Dir A and Laura Baeza, Head of Unit, EuroMed and Regional issues, RELEX. The speakers addressed issues on the relation between the north and south Mediterranean and how the historical ties between the two shores entail a common vision for their future. They underlined the need to engage the research community and specifically the FEMISE members in deepening the understanding of the issues that support the EU-Med partnership and ensure the success of the adopted Neighborhood policies. They addressed the issue of the research agenda of the EU-Med, highlighting the areas that still lack research, including environment and investment. Other areas were also highlighted including, but not limited to: informal sector, rural development migration and poverty.

The second paper entitled “The impact of the diagonal cumulation of Rules of Origin in the context of Euro-Med integration” was presented by Dr. Michael Gasiorek who introduced the presentation by explaining that rules of Origin (ROOs) are a necessary part of all free trade agreements (except customs) in order to prevent trade deflection. But those ROOs imply constraints on the sourcing of intermediate inputs by firms. He explained that the principal aim of the paper is to shed light on how important those constraints might be – in the context of the introduction of the Pan-European Cumulation System (PECS). He added that a secondary aim is to try and get a better understanding of what is driving those constraints. The paper highlights the meaning of cumulation and explained its impact on trade diversion and on firms. The author concluded that ROOs are necessary in order to support the process of regional integration. The paper provided evidence at the sectoral level that the EU rules of origin constrains trade. This is potentially important for the Mediterranean Partners countries, in particular as the EU is currently trying to revise its rules of origin. It also showed that diagonal cumulation can make a real difference, hence emphasizing the importance of agreements such as the Egypt-Turkey, Morocco-Turkey, Agadir etc and that some evidence proved that ROOs are determined by protectionist interests.

Parallel Session (1B): Growth and Poverty

Moderator: Fabian Verhoeven, Office de Coopération EuropeAid, Commission Européenne

The session addressing the issue of growth and poverty featured the presentation of the paper titled “The Children Challenge in the Mediterranean Area. Experiences and Perspectives in Child Well-Being Promotion” and was presented by the project leader, Dr. Carla Collicelli. The presentation started by introducing the CENSIS institute and a summary of the two previous projects that were financed by FEMISE in 2000 and 2003. The current project aims at: (a) studying the state of Mediterranean children based on a comparative framework integrating different indicators and economic development, (b) undergoing a country study for Egypt and (c) realizing a qualitative survey. The initial results showed a positive convergence: whereas infant mortality declines, life expectancy increases and fertility rates decline. However, imbalances in children wellbeing in the region exist and the link between this wellbeing and economic prosperity is not automatic. Also, a big disparity in the link between child mortality and human development exist, i.e. countries that have reached high levels of HDI can still have disadvantaged conditions for children. Other results found a bivariate association between “under five mortality rates” and the HDI, government expenditure and employment, but not with the GDP. Provisional conclusion includes that poverty; illiteracy and low investment in social services are the basic causes for children being at risk, that studying the state of children goes beyond mortality statistics and the importance of accompanying policies of economic growth by those of the fight against hardship for children.

Comments and questions from the floor addressed the need to introduce the social class aspect in terms of equality and gender, the need to investigate more on the correlations and the relationships that were found, and the need for more data to allow deeper interpretation of results. More comments were made on the importance of linking this issue with the labour market and the impact of low wages that push children to work and the need to, not only give importance to social policies related to children, but to implement immediate interventions that have impact on children’s wellbeing.

Parallel Session (2A): Financial and Monetary development of the Med Partners countries

Moderator: Wafik Grais, World Bank and member of FEMISE Scientific committee

The parallel session on financial and monetary development of the Mediterranean partners’ countries included two papers. The first paper “Monetary Policy and Inflation Control Under Financial Dominance: the Case of Egypt, Morocco, Tunisia and Turkey” was presented by the leader of the project Dr. Mongi Boughzala who emphasized that despite the relative success of the implemented stabilization and reform programs adopted by these countries in the past two decades, in many aspects, their macroeconomic stability is still at risk, with likely serious negative impacts on their development performances. For a long period of time their monetary policy does not seem to have any clear cut objective and strategy. The need for a more solid and coherent monetary policy has recently become more obvious as a result of their increasing openness to trade and to capital flows. Within this context, the paper is questioning if inflation targeting (IT) is seen by the four countries as the solution and if it’s the most appropriate monetary policy? If so what would be the pre-requisites for carrying out the IT in these countries? He then presented three main parts: (a) the IT pre-requirements, a quick review of fiscal discipline and the soundness of the financial system. (b) Showing that many important requirements are not fulfilled in various degrees, depending on the country: financial fragility and fiscal discipline are important concerns. The paper reported some progress that has been made: Turkey more fully committed, Morocco making progress more rapidly than Egypt and Tunisia since 2006; and finally, (c) the simulation model and preliminary results. The author concluded that the financial systems in Egypt , Morocco and Tunisia are not ready yet to adopt IT policies and that it would be risky to do so in the current stage. However, the Turkish experience and the progress achieved in Morocco show that it is not to be excluded. More actions and reforms are to be undertaken before switching to IT. It took Turkey a crisis to make the decisive resolve to go through the transition process and then move to IT. Finally, more independence for the central banks and cleaning up NPLs is a critical first step and actions are taken into this direction.

The second paper entitled “Financial Development, Economic Growth and Poverty Alleviation” was presented by two authors, Dr. Mondher Cherif and Dr. Nidal Sabri. The study is based on three complementary studies on financial development in the region: the first study is focusing, mainly, on the evaluation of the financial system through the use of financial indices; the second is highlighting the impact of capital account openness and the legal/institutional environment on financial development in the MEDA countries and the third study is assessing, using updated econometric techniques and variables definition, the incidence of financial development on economic growth, source of growth, poverty and trade. The study provides an outline of financial system development in MEDA countries and its impact on economic growth, trade and poverty alleviation. More specifically, it deals with two key causality issues with respect to institutional investors: First, it assesses whether the financial sector development (banking and stock market) is a precondition for the growth of institutional investors or that the institutional investors stimulate financial market developments. Secondly, it verifies whether institutional investors contribute directly to economic growth, even after controlling for bank and stock market contributions. The authors then explained some key features of the financial sector in the region and selected measures and methodology that are used for this project.

Parallel Session (2B): The role of liberalization on the Labour markets of the Med Partners Countries

Moderator: Lahcen Oulhaj, Faculté des Sciences Juridiques, Economiques et Sociales, Mohamed V

The parallel session on the role of liberalization on the labor markets of the med partner countries featured two presentations. The first one titled: “the Impact of Trade Liberalization on Labor Markets (Informal and Formal), Productivity and Income. A comparative Study of the Moroccan and Tunisian Experience”, was presented by the team leader Dr. Ahmed Laaboudi who explained that since the engagement of Morocco in the irreversible process of trade liberalization which entails the disappearance of trade tariffs and the progressive transformation of non-tariff restrictions into tariff ones, different sectors have been exposed to foreign competition. This competition might have serious implications and costs on these sectors’ income and employment. The data showed that the evolution of employment structures and wages are in favor of qualified labor especially in urban areas, raising the question of whether these changes are due to trade liberalization or are induced by some other factors. Thus, three analyses approaches are proposed to study the phenomenon: analysis of transformation of the structure of employment and income in general and by sector, a micro level analysis of enterprises behavior, and a macro analysis based on a model of general equilibrium. So far data sources were identified, databases constructed and econometric modeling is being achieved. The methodology is being tested and some first econometric relations are estimated.

Discussion from the floor included the link between trade liberalization and poverty reduction in the context of increase of wage discrimination. Some questions were raised about the inclusion of the informal sector and how the impact of the trade liberalization was tested and the role of specialized programs to support the sector. The author explained that variables that are hard to quantify are difficult to integrate in the analysis, but some analysis included the informal sector but that the results are still in progress. He added that the Tunisian case was added to the analysis for comparison purposes mainly since studies have been already undertook on Tunisia in this regard, and that a very general result of the paper shows a decrease in the absolute poverty accompanied by an increase in relative one.

The second paper was titled “Trade and Jobs in Morocco : Why Do Some Firms Succeed and Others Fail to Increase Employment?” and presented by the leader of the project Dr. Khalid Sekkat. The main question that the research is trying to answer is whether, and to what extent, technology upgrading (including investment, training or R&D) helps firms to face foreign competition. The analysis points so far that openness is not the main cause of labor market problems, which is confirmed by the literature and that employment can be affected by other factors e.g. economic cycle, technological change, and labor market institutions. Furthermore, upgrading technology/equipments and training help firms’ successful participation in the global economy and increase their competitiveness. The author also presented the econometric model of the analysis and some preliminary results. Some of the most key comments from the floor then were related to the importance of inclusion of firms that did not succeed and went out of business in order to better understand the link between firms’ performance and employment in a liberalization context. It was found that the results of the study were compatible with those of another one done in Israel , which shows that the way to fight unemployment is through training not relying on the market forces.

Parallel Session (3A): South South integration

Moderator: Dr. Adel Beshai, American University in Cairo

The session addressing the issue of South-South integration included two papers. The first paper presented was titled “Regional Integration and Goods and Factors Flows in the MENA Region” and was presented by Sule Akkoyunlu. The study had the following objectives: to investigate the determinants of emigration with time series data on Turkish migration to Germany, to analyse how well migrants have performed over time in the host country, and to see the role of demand side in determining migration and the labour market adjustment of migrants. The author argues that migration can not be analysed in isolation from trade, aid and capital flows, especially for policy analysis. Trade, aid and remittances are introduced into the time series migration model and the authors investigated how the migrants have adapted in the host country. The main conclusions included that Migration, trade, aid and remittances are related, that until income differentials are reduced, migration will persist and that remittances trigger more migration, which foster migration chains. It also concluded that migration will be better managed when the dynamic gains from trade and aid are considered which can contribute to poverty alleviation through employment creation, human capital formation, upgrading skills, knowledge and technology; only then productivity will increase and income differential will be reduced. The report also concluded that Turkey benefits from remittances of altruistically motivated Turkish migrants and finally that Turkish migrants adjusted to labour markets in Germany by becoming self-employed.

The second paper titled “Full integration versus partial trade liberalization: Comparing the economic performance of the NMS and MPC’s” was presented by Dr. Jan Michalek who explained that the research project is divided into three parts: The first part deals with the analysis of the effectiveness of trade liberalization agreements: assessing and comparing the trade creation and trade diversion effects using a standard model of bilateral trade flows, comparing between CEE countries and the MENA countries. This analysis found that in all the cases, EU-Association Agreements significantly contributed to the increase in bilateral imports of the MENA countries from EU. However, agreements do not seem to contribute positively (significantly) to the expansion of exports from the MENA countries to the EU and that not all the MENA countries were able to benefit equally from the EU Association Agreements. The second part deals with the analysis of the causes of protectionism and rent seeking in the NMS and MPC: testing empirically the Grossman and Helpman model “Protection for Sale “. It examines what impact lobbies do have on the pattern of sectoral protection, the analysis being made for Poland and Israel . One of its main conclusions is that the Polish government paid almost no attention to organized protectionist lobbies, and due to external pressure from the EU, EFTA and WTO, it liberalized its tariff policy very rapidly in the second half of 1990’s. The results also suggest that only the export oriented industries in Israel , managed – to a very limited extent – to exert some influence on the government and receive some tariff protection. The third part demonstrates that corruption is a more important problem in MPCs (than among NMS) and that lack of determination in removing artificial entry barriers might lead to corrupt behavior. The authors try to explain the two-way relationship between corruption and constraints on carrying out business, the comparison being made for CEE countries and MENA countries. The results showed that to reduce corruption, liberalization and improvements in the bureaucracy will be required. Even with reforms in the specified areas bureaucratic habits die hard. Given the history of corruption, the proposed measures would probably be not sufficient to lower it to the level of the NMS.

Parallel Session (3B): Liberalization of agriculture, services and movement of people

Moderator: Khalid Sekkat, Université libres de Bruxelles

The session for liberalization of agriculture, services and people included the presentation of three papers. The first on “Recent Migration Patterns from MENA Countries to the EU: a Quantitative Assessment and Policy Implications” was presented by Dr. Nicolas Peridy and discussed four main research questions: what are the main south-north migration trends? What are their determinants? What is the migration potential between these two sides of the region and to what degree are the European migration policies coherent? The analysis showed that migration policies favor qualified labor, restricts family migration and is attractive for students. It concluded with the results that the high level of south-north migration is due to proximity, wage differences, cultural links and networks. The objectives of the European migration policies are to reduce the non-desired migration flows by reducing wage differences and ameliorating macroeconomic performances. The study also shows that there is a lack of coherence between national migration policies themselves; between migration policies and commercial ones and that the problem of brain drain is a real and serious one in south countries, which requires the necessity of investing in research and innovation.

The second paper entitled “The Role of Services as the Factor of Integration of Euro-Med” and presented by Dr. Subidey Togan, included three main parts: a framework for services liberalization, services sectors in five MENA countries and the implications of liberalization of trade in services and network industries. Since the MENA countries are trying to liberalize the service sectors mainly by following the EU approach to liberalization, the study considers the case where the MENA countries will align their regulatory frameworks to those prevailing in the EU. Selected MENA countries, Egypt , Morocco , Tunisia and Turkey are considered and the study concentrates on the effects of liberalization in the sectors of banking, telecommunications, maritime transport, electricity and natural gas. To be able to simplify the basics of the approach the authors concentrate the analysis on the effects of liberalization in the banking sector of Turkey where they consider the case when Turkey implements all the rules and regulations of the EU. The study argues that if Turkey had adopted and implemented the legislative, regulatory and institutional framework inherent in the Basel Core Principles or those of the EU banking system during the 1990’s, then the banking crisis would not have occurred, and even if it did occur, the cost would have been much smaller than $53.2 billion. Total welfare effect of adopting the EU rules and regulations in the banking sector is calculated at 2.402 percent of GDP. Using the same approach for other sectors and other countries the authors found that the percent change in the GDP of Egypt, Morocco and Tunisia as a result of liberalization of banking, telecommunications and maritime transport services will increase by different amounts. The results for Turkey indicate that the most important service sector can be identified as the sector with the highest benefits as measured in terms of the size of the percentage effect of liberalization on GDP. By these criteria the priority sectors are banking, electricity, maritime transport, telecommunications, and natural gas. Countries intending to liberalize their banking sectors should give priority to achieve compliance with the Basel Core Principles for effective banking supervision. As more foreign investment enters the country, more MENA banks will begin to pay attention to corporate governance, and professional management. As EU banks are supervised by their home regulator, they are a vehicle to import better regulation. However, since the cost of adjustment to the EU banking acquis in MENA countries would be quite high, active convergence could be achieved at a later stage. Furthermore, the adoption of the EU acquis together with the liberal FDI policies adopted may help to attract investments of multinational corporations in the natural gas, electricity and telecommunications sectors.

The third paper presented by Dr. Alessandro Lorca entitled “Decision Tree of the Roadmap for Agricultural Liberalization in the Euro-Mediterranean Zone”. The author explained that one of the problems related to agricultural trade in the region is the similarity of climate and soil which results in the similarity of products. On the other hand, agricultural models are very different in south and north of the med. He argued that one other problem pertaining to the south concerns the inefficient use of subsidies related to agriculture. He gave the example of the heavily subsidized water in Morocco that is used in lettuce irrigation, and then the production is exported, which means that the subsidy was exported too. Also, a point was raised concerning the resistance of European countries to liberalize trade in agriculture and the fact that there a certain political constraint that makes the decision makers reluctant when it comes to agricultural policies. Which make the issue of agricultural liberalization a political one and not only economic. The question the author raises is: If Europe is to liberalize agricultures, what will be the priorities? Losers and winners are completely different and Mediterranean countries can’t face the competition, therefore the impact on the south must be seriously considered. An asymmetric roadmap must be implemented; a step by step and product by product approach too. A cluster analysis needs to be made and similarities must be mapped to know the potential problems that will be faced with the liberalization.

Parallel Session (4A): Firms Behavior in the context of Openness

Moderator: Agnieszka Skuratowicz, Ecfin, European Commission

The session addressed the issue of firms’ behavior in the context of openness and included the presentation of two papers. The first one titled: ” How Does Trade Liberalization Affect Entry and Exit Costs: a Comparison of the Spanish and Turkish Experience Using Firm-Level Data”. The paper was presented by Dr. Juliette Milgram who introduced the paper by saying that it was motivated by the fact that the gains to be obtained from trade at the micro level depend on the impact of trade on productivity. She explained that the growing availability of firm-level data in several countries offers evidence of the heterogeneity of firms while most trade models used a representative firm framework (at least at the level of the industry) and assume that macroeconomic context affects all firms in similar ways. Models with heterogeneity of firms shed new lights on the possible channels between trade liberalisation and productivity gains. This paper studies two countries that engage in bilateral trade liberalisation with the EU: Spain and Turkey . It focuses on the effect of tariffs on firms’ TFP and attempts to explain the exit and export behaviours of firms. The main conclusions showed that a decline in tariffs seems to translate into productivity improvements but do not affect all the firms in the same way. Even in a European country like Spain with a relatively low level of protection, there are additional gains to expect to a move towards more liberalised trade. However, a large part of the positive effect comes from the presence of foreign products and more indirect effects of openness rather than from tariffs’ reduction. But, main parts of aggregated productivity growth came from reallocation among firms. Concerning the entry decision of firms in export markets, the results confirm that firms self-select into foreign markets. Results suggest to considerably sunk costs at exporting and provide only weak evidence for the hypothesis that firms are more likely to survive in protected markets.

The second paper is titled “Conceptualisation of the firms’ behaviour in the openness context of the Med Countries” was presented by Dr. Patricia Augier who explained that the study was motivated by the fact that the relationship between openness and growth is not confirmed under all circumstances and there is a necessity to better understand this relationship. It is also important to investigate what happens on the firm level with openness and what this implies in term of development path. The presenter noted that existing theoretical frameworks are not capable of explaining or predicting the effects of openness on firms in the south, therefore, a modification of the basic hypotheses and building a model that is more specific to the countries of the study is necessary. The study concludes that there is a need for a theoretical model that is adapted to the context of the south countries, which is verified in the case of the Moroccan firms. In terms of policy implications, the study concludes that a special attention should be given to the rhythm of openness and tariff eliminations. It also emphasizes the incapacity of trade reform alone to boost productive sectors. Some of the recommendations were pertaining to the instauration of accompanying policies that help SMEs access finance and to offer training for entrepreneurs.

Both authors agreed that their studies’ results are compatible because only big firms are positively impacted by trade liberalization, and the negative link between size and access to finance is clear throughout the study.

Parallel Session (4B): Knowledge base Economy and The education and Training systems in the Med Partners

Moderator: Ahmed Driouchi, Institute of Economic Analysis & Prospective Studies, Morocco

The session dealing with knowledge base economy and education and training systems in the Med partners included the presentation of two papers. The first entitled “Policies to Promote an Enabling Environment for a Knowledge-based Economy (KBE) in Palestine and Jordan ” was presented by Dr. Amer Jabarin . The objectives of the research are: (1) to provide a theoretical framework so as to evaluate the features necessary for an enabling environment for a knowledge-based economy within Jordan and Palestine, (2) to consider the development strategies identified in the two countries’ strategic economic plans, in an attempt to assess their capacity to promote human development for a KBE, (3) to describe the governance capacities and the legal environment for a KBE in general and particularly in relation to human resources and (4) to propose necessary interventions and policies to address the barriers identified and to maximize opportunities for human capital development in the KBE within Palestine and Jordan. The conclusions for Palestine were that for the economy to transform into a knowledge-based economy, a strong and a committed leadership that understands the role of ICT in generating economic growth is of critical importance. Improving the general environment for the flourishing of entrepreneurship is also fundamental. General economic and political stability in the country must be achieved and the rule of law must be maintained. As for Jordan , the recommendations are oriented towards building capacities in Jordan ‘s knowledge-based economy through the utilization of the experience of other countries and lessons learned. The analysis showed that Jordan has an open market policy compared to the rest of the region and markets for Jordanian products and services are growing in the region. Despite the remarkable achievements in the last few years in the area of high technology, Jordan is still lagging behind and faces challenges from many other countries including those of low wage competition from Eastern Asian countries. Facing these challenges and attaining the potential opportunities requires innovation. This innovation should cover the areas of policy, institutions, infrastructure, products and processes. The study also provides specific recommendations that would accelerate the building capacities in Jordan ‘s KBE.

The second paper titled “Evaluation of the Professional Training System and its Impacts on Development: Comparison Between Morocco and Tunisia” was presented by Dr. Jamal Bouyour who explained that the study was motivated by the fact that: the weak accumulation of physical capital in the Maghreb economies, the low levels of national savings and the failure of the attempt to compensate this weakness by FDI developed the need to find other sources for growth. Thus, it is very important to develop an education and training strategy to build human capital and to address the needs of these economies. By improving the skills, efficacy and mobility of the labor, education contributes to the amelioration of the TFP. In this context, the main objective of the study is to evaluate the pace, the quality and nature of the integration of the professional training graduates in the economies of Tunisia and Morocco . The research is still in progress and so far: a review was made of the status of professional training in Morocco and Tunisia with a comparative dimension, the econometric model was built and validated and the surveys/questionnaires are being implemented in the two countries.

Parallel Session (5A): Competitiveness and programs of Mise a niveau in the Med Partners Countries

Moderator : Michael Gasiorek, Sussex University , UK

The parallel session dealing with Competitiveness and programs of technology upgrading (mise a niveau) in the Med partners countries included two papers. The first paper titled “Price Competitiveness and Productive Efficiency in the Manufacturing Sector of Morocco and Tunisia ” was presented by Dr. Patrick Plane . He explained that the study includes five countries: Egypt, Jordan, Morocco, Tunisia and Turkey and aims at dealing with three main issues: 1) branches and international competitiveness through price formation, 2) macroeconomic competitiveness and real exchange rates, 3) factors’ productivity according to branch and price competitiveness. The study is so far at the second stage and preliminary conclusions showed that issues and problems related to competitiveness are different from one economy to another. However, in general, exchange rates are adequately managed in the countries concerned of the study. However, Jordan and Morocco being less active when it comes to the nominal exchange rate they are more vulnerable. Nevertheless, these economies are engaged in a trade liberalization process which entails internal competitiveness also and not only an international one. The author concluded by questioning the utility of using factors’ productivity, endogenous variables, as elements for choc attenuation.

The second paper titled “Evaluation of the Programme de Mise a Niveau implemented by the Southern Mediterranean Countries” was presented by Dr. Adel Ben Youssef who explained that the objectives of the research is threefold: (1) to understand the real impact of the technology upgrading or “programmes de mise a niveau” (MNP) implemented by Egypt, Morocco, Algeria and Tunisia on enterprises’ performance (2) to evaluate the institutional effectiveness of the structures of governance of these programs, and (3) to understand the relative differences of these programs, their implementation and impacts in order to detect best practices. The research showed that in terms of national MNP, it was found that in Morocco , there were failures in the very selective policies, while in Algeria the policies were contradictory and lacked the support of the banking sector. In Egypt , very ambitious and large modernization programs are being implemented but lack accurate objectives and targeting. Finally Tunisia is the one country where those programs are being relatively more successful by adopting a large approach of “mise a niveau” pertaining to infrastructures, human resources, quality and technology. The paper concludes that the relative failure of theses MNP is due to the lack of adequate governance, and the lack of understanding the objectives of these policies, weak modernization of the productive system, and absence of targeting. Comments from participants included the fact that there is a need to include a wide range of enterprises in the analysis, especially those who failed in applying the technology upgrading programs in order to accurately know the reasons for such failures. It was also argued that the failure of these policies in Morocco is due to the absence of motivation from the enterprises’ heads to abide and implement the programs. Also it was mentioned that it will be useful to study the determinants of success in the Tunisian case to which the author explained that it was the gradual implementation of the PMA.

Parallel Session (5B): Macro and investment in the EU-Med context

Moderator: Sergio Alessandrini, Universite Modena E Reggio Emilia, Italy

The Session on macro and investment witnessed the presentation of one paper entitled “Assessing the Macroeconomic Effects of the Barcelona Initiative’s Liberalization Process” which was presented by Dr. Bernd LUCKE and Dr. Roby Nathanson who assessed the Macroeconomic Effects of the Barcelona Initiative’s liberalization process and showed that consumption, investment and imports react positively to tariff liberalization, while government expenditure shows no response.