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Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Trade DIRECTIONS INDEVELOPMENT Trade Competitiveness ofthe Competitiveness Trade Middle EastandNorth Africa José R. López-Cálix, Peter Walkenhorst, andNdiaméDiop Walkenhorst, Peter José R.López-Cálix, Policies forExportPolicies Diversification Editors Trade Competitiveness of the Middle East and North Africa Trade Competitiveness of the Middle East and North Africa Policies for Export Diversification José R. López-Cálix, Peter Walkenhorst, and Ndiamé Diop Editors © 2010 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail: [email protected] All rights reserved. 1 2 3 4 :: 13 12 11 10 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The bound- aries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with com- plete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: [email protected]. ISBN: 978-0-8213-8074-1 eISBN: 978-0-8213-8075-8 DOI: 10.1596/978-0-8213-8074-1 Cover photos: Bunyad Dinc/World Bank (Istanbul market street), Julio Etchart/World Bank (Agadir port) Cataloging-in-Publication data is available from the Library of Congress. Contents Acknowledgments xix Contributors xxi Chapter 1 Trade Reforms for Export Competitiveness: What Are the Issues for the Middle East and North Africa?1 Ndiamé Diop, José R. López-Cálix, and Peter Walkenhorst Export Diversification3 Services Trade5 Relations with China and India6 Regional Integration8 Note9 References 9 PART I Export Diversification Chapter 2 FDI Flows and Export Diversification: Looking at Extensive and Intensive Margins 13 Julien Gourdon v vi Contents Export Diversification in the Middle East and North Africa 14 The Potential Impact of FDI on Export Diversification 22 The Model 26 Conclusions 35 Annex 36 Notes 44 References 44 Chapter 3 Promoting New Exports: Experience from Industry Case Studies 47 Claudia Nassif Export Diversification in “Resource-Poor” Countries in the Region 48 Case Studies 51 Designing Proactive Policies to Encourage Experimentation and Imitation 57 Conclusion 60 Notes 61 References 61 Chapter 4 Export Diversification in Algeria 63 Ricardo Hausmann, Bailey Klinger, and José R. López-Cálix The Structure of the Algerian Economy 64 Why Is Algeria So Dependent on Hydrocarbons? 68 Applying a New Methodological Approach to Export Diversification 74 Using the Product Space to Scan the Possibility Space for Algerian Exports 81 Policy Implications of the New Methodology for Industrial Strategy 88 Annex 96 Notes 100 References 101 Contents vii PART II Services Trade Chapter 5 Emerging Export Services: Where Does Tunisia Stand? 105 Olivier Cattaneo, Ndiamé Diop, and Peter Walkenhorst Can Emerging Export Services Contribute to Growth and Poverty Reduction? 105 How Has Tunisia Performed in Emerging Export Services? 110 Are Tunisia’s Emerging Export Services Internationally Competitive? 117 What Needs to be Done to Strengthen Competitiveness? 124 References 132 Chapter 6 Anchoring Services Reform: The European Neighborhood Policy and Morocco 135 Ndiamé Diop Liberalization Reforms and the Openness of Morocco’s Services Sectors 137 The Need to Strengthen the Regulatory Framework 137 Options for Regulatory Convergence with the European Union in Selected Sectors 140 Implementing Competition Policies 155 Notes 157 References 160 Chapter 7 Services Trade as an Engine of Development: Situation and Prospects in Algeria 163 Olivier Cattaneo, Said Ighilahriz, José R. López-Cálix, and Peter Walkenhorst Quantifying the Importance of Services for Algeria 163 Trade in Services: An Important but Often Poorly Understood Concept 169 viii Contents Strengthening the Economy by Bolstering Trade in Services 175 Issues for Policy Makers 185 Notes 187 References 188 PART III Relations with China and India Chapter 8 Economic Growth in China and India: Challenges and Opportunities for the Middle East and North Africa 193 Elena Ianchovichina, Maros Ivanic, and Will Martin Messages from the Literature 194 Methodology, Data, and Simulation Design 203 Results 206 Concluding Comments 214 Annex 217 Notes 221 References 222 Chapter 9 Globalization and Competition from China and India: Policy Responses in the Middle East and North Africa 227 Paul Brenton, Lulu Shui, and Peter Walkenhorst Globalization and the Export Performance of Countries in the Middle East and North Africa 228 Imports from China and India 239 Gaining Access to Overseas Markets 241 Exploitation of Existing Opportunities for Export Growth 247 Conclusions and Policy Messages 250 Annex: Export Growth and Constant Market Share Analysis 251 Notes 264 References 264 Contents ix PART IV Regional Integration Chapter 10 Regional Integration: Status, Developments, and Challenges 267 Lulu Shui and Peter Walkenhorst Reasons for the Failure of Past Integration Attempts 269 Open Regionalism 294 References 295 Chapter 11 Economic Gains of Regional Agreements in the Maghreb: Deeper versus Wider Integration 299 Paloma Anos Casero and Ganesh Kumar Seshan Some Conceptual Issues 300 Some Methodological Issues 302 Scenarios 303 Conclusions 312 Annex: Methodology 313 Notes 327 References 328 Index 331 Boxes 3.1 How Entrepreneurship Makes a Difference 53 3.2 Spurring Exports in Tunisia through FAMEX 59 5.1 Promoting Exports through a Technology Park 130 6.1 Major Directives Governing the Telecommunications Sector in the European Union 141 6.2 Liberalization of the Telecommunications Sector in Estonia 145 6.3 Reform of Port Services in Romania 152 7.1 Missed Opportunities in the Algerian Legal Market 179 7.2 French Entry into the Algerian Supermarket Sector 181 7.3 Why Liberalization Often Produces Disappointing Results: Sequencing, Regulation, and Access Policies 186 xContents 10.1 The Long History of Integration in the Middle East and North Africa 270 Figures 2.1 Theil Index for Trade in Several Countries 16 2.2 Herfindahl Index for Trade in Several Countries 17 2.3 Gini Index for Trade in Several Countries 19 2.4 Theil “Within” Index for Selected Groups of Countries, 1988–2006 20 2.5 Theil “Between” Index 21 2.6 Actual and Potential FDI Flows in Selected Countries, 1990–95 and 2000–05 23 2.7 FDI Inflows and Export Concentration in Developing Regions 26 2.8 Coefficients Measuring the Impact of FDI on Export Concentration 34 2.A.1 Shares of Within and Between Components in Overall Theil Index 39 3.1 Herfindahl-Hirschmann Index of Export Concentration, 1990 and 2005 49 4.1 Per Capita Oil Exports and Oil Exports as Percentage of Total Exports in Selected Countries, 2004 66 4.2 Non-Oil EXPY of Selected Countries, 1986–2004 67 4.3 Algeria’s Real Effective Exchange Rate, 1980–2006 69 4.4 Volatility of Real Exchange Rate (1996–2006) and Exports per Capita (log) 70 4.5 Top Business Constraints Identified in the 2007 Investment Climate Assessment of Algeria 72 4.6 Relationship between Number of Products Exported and Doing Business Ranking in Selected Countries 73 4.9 Relationship between Open Forest and GDP per Capita in Selected Countries, 2004 79 4.10 Most Optimistic Open Forest Calculations in Selected Countries, 2006 80 4.13 New Products 2 Standard Deviations above Average Density, Weighted by World Trade 84 4.14 New Products 2 Standard Deviations above Average Density, Weighted by Strategic Value 85 Contents xi 4.15 New Products 1.5 Standard Deviations above Average Density, Weighted by World Trade 86 4.16 New Products 1.5 Standard Deviations above Average Density, Weighted by Strategic Value 87 4.17 Unoccupied Products 1 Standard Deviation above Average Density, Weighted by World Trade 88 4.18 Unoccupied Products 1 Standard Deviation above Average Density, Weighted by Strategic Value 89 4.19 Sectors Targeted under Government of Algeria’s New Strategy 91 4.A.1 Relationship between Export Sophistication and GDP per Capita in Selected Countries, 2004 97 5.1 World Services Exports, by Type, 1995–2006 106 5.2 Offshoring Potential of Selected Service Industries 107 5.3 Offshore, Onshore, and Insourced Call Center Activity in the United States, United Kingdom, and France, 2006 108 5.4 Number of Call Center Seats Serving Francophone