Does agricultural free trade benefit Ethiopia and Sudan? CGE Model Approach

Abstract

It has been argued that trading among neighbors under a free trade arrangement benefits country. Recognizing this, Ethiopia and Sudan formed a free trade agreement. Hence, this paper has tried to examine the impact of unilateral agricultural policies that augment the productivity of agricultural goods under free trade and the free mobility of labor on the economies of Ethiopia and Sudan. The 2011 social accounting matrices of Ethiopia and Sudan have been used, and a regional social accounting matrix that comprises both economies has been constructed. The Stage CGE model has been applied, and two separate simulations have been considered. The first simulation presumes an improvement in the agricultural sector of Ethiopia while keeping the agricultural sector of Sudan as it is, and the second scenario dwells on enhancing the agricultural sectors of Sudan while keeping the agricultural sector of Ethiopia as it is. The result of the first simulation revealed that the agricultural sectors of Ethiopia increased while the industrial sector and the agricultural sector of Sudan were negatively affected. The result further revealed that the industrial sector of Sudan has improved. The second scenario revealed that the agricultural sectors of Sudan increased while the agricultural and industrial sectors of Ethiopia were negatively affected. The thus study recommends that while Sudan and Ethiopia engage in a free trade area, they have to formulate agricultural policies together in a bid to reduce the negative effects of agricultural policies on the industrial sector of Ethiopia and the income of Sudan households.