Trade Integration with Europe, Export Diversification and Economic Growth in Egypt

Egypt needs to diversify exports further in order to emerge from its isolation and to draw the maximum advantage from the growth potential offered by trade globalization. To what extent does the bilateral free trade agreement with the European Union encourage the transition from a rentier economy to one of export-led growth? This paper uses a dynamic, calculable, general equilibrium model to assess different scenarios for the Egyptian economy to the year 2010. The authors reach the conclusion that the preferential trade agreement with Europe should facilitate the transition if the increase in trade results in higher Egyptian productivity through technology transfer and pressure from competition. Under these conditions, the agreement would seem to have a similar impact to that which could be expected from unilateral Egyptian trade liberalization, affecting all the country’s trading partners.