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The Annals of Regional Science
Published in: The Annals of Regional Science 1/2014

01-08-2014 | Original Paper

Spatial perspectives of increasing freeness of trade in Lebanon

Author: Eduardo A. Haddad

Published in: The Annals of Regional Science | Issue 1/2014

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Abstract

In this paper, we use an interregional computable general equilibrium model for Lebanon—the ARZ model—for the analysis of place-based policies in the country, in an attempt to bring additional insights to some of the proposals presented in the National Physical Master Plan of the Lebanese Territory. We apply the model to look at the ex ante potential regional implications of an increase in domestic and international integration of Lebanese regions through reductions in trade costs. The link between freeness of trade and the equilibrium distribution of activities is explored.
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Appendix
Available only for authorised users
Footnotes
1
With less than 11,000 km\(^{2}\), Lebanon is the second smallest country in the Middle East and the Arab World (after Bahrain). Its territory represents 1/1,000th that of large countries such as the USA and Canada and 1/100th that of Egypt (NPMPLT 2005, ch. 1, p. 1).
 
2
NPMPLT 2005, Introduction, p. 1.
 
3
Op. cit., Introduction, p. 4.
 
4
Hereafter, increase in freeness of trade and integration will be used interchangeably.
 
5
ARZ is the Arabic word for cedar, the symbol of Lebanon. It is also a pseudo-acronym in Arabic standing for Analytical Regional System.
 
6
To our knowledge, other sources of data are seldom incorporated in the existing modeling efforts for Lebanon (e.g. demographic and social statistics such as population, labor force and household expenditure surveys).
 
7
See World Road Association (2003) for a discussion in the context of transport policies.
 
8
Peter et al. (1996) and Haddad (1999).
 
9
See Haddad (2012) for a detailed description of the database.
 
10
Spatial friction was approximated by distance measures, calculated for each pair of origin-destination using Google Maps (see Haddad 2012).
 
11
Hereafter, trade services and margins will be used interchangeably.
 
12
In the case of international imported goods, the implicit trade margin may be interpreted as the costs at the port of entry, while for foreign exports it would refer to costs at the port of exit.
 
13
Similarly, one can think about a flow of exports or imports.
 
14
The process of calibration of trade costs assumes \(A = 1\) for all \(i,\, s\) and \(r\) in the benchmark year. Thus, \(\eta \) can be calibrated by calculating the relationship between \(m\) and \(x\) directly from the interregional input–output database.
 
15
The detailed system of equations of the ARZ model is available in an “Appendix”.
 
16
The system of equations provides the theoretical structure of the model. In the implementation of the ARZ model, the linearized version of the model was condensed by eliminating some equations and variables, generating a reduced version with 33,454 equations and 34,248 variables. To close the model, values for 794 variables have to be set exogenously (the number of endogenous variables must equal the number of equations). The condensation procedure, i.e., the reduction of the size of the model, is carried out by substituting out variables that are to be endogenous and are of less interest to the analysis and presentation of the simulation results, and by omitting variables that are to be exogenous and not shocked in the simulations. The nominal exchange rate was set as the numéraire.
 
17
In the ARZ model we impose the assumption that margins are produced in the destination region, with the exception that margins on exports are produced in the source region.
 
18
This result may be suggesting that internal trade costs are relatively more important to regional competitiveness than specific trade costs associated with international transactions in Lebanon.
 
19
The regularity in the positioning of the lines in Fig. 6 is due to the model’s assumption that the price received by the producer is uniform across all customers. The assumption on zero pure profits in current production is imposed by setting unit prices received by producers equal to unit costs, while the assumption on zero pure profits in distribution is imposed by setting the prices paid by users equal to producer price plus commodity tax plus margins.
 
20
Darker colors refer to higher contributions to real GRP in the context of increasing integration.
 
Literature
Berthélemy JC, Dessus S, Nahas C (2007) Exploring Lebanon’s growth prospects. Policy Research Working Paper 4332, The World Bank, August 2007
Bröcker J (1998) Operational computable general equilibrium modeling. Ann Reg Sci 32:367–387CrossRef
Dessu S, Ghaleb J (2006) Lebanon—trade and competition policies for growth: a general equilibrium analysis. Middle East and North Africa working paper series 42, The World Bank, May 2006
Dixon PD, Parmenter BR (1996) Computable general equilibrium modeling for policy analysis and forecasting. In: Amman HM, Kendrick DA, Rust J (eds) Handbook of computational economics, vol 1. Elsevier, Amsterdam, pp 3–85
Dixon PD, Rimmer MT (2002) Dynamic general equilibrium modelling for forecasting and policy: a practical guide and documentation of MONASH. North-Holland, Amsterdam
Fujita M, Krugman P (2004) The New Economic Geography: Past, Present and the Future. Pap Reg Sci 83:139–164CrossRef
Haddad EA (1999) Regional inequality and structural changes: lessons from the Brazilian experience. Ashgate, Aldershot
Haddad EA (2012) Progress on the development of an interregional computable general equilibrium model for Lebanon: the input-output system. TD NEREUS 01-2012, University of Sao Paulo
Haddad EA, Hewings GJD (2005) Market imperfections in a spatial economy: some experimental results. Quart Rev Econ Financ 45:476–496CrossRef
Hamade K, Malorgio G, Midmore P (2011) Combining quantitative and qualitative approaches to rural development analysis: the case of agricultural intensification in Lebanon. In: Paper presented at the annual agricultural economics society conference, Warwick, April 18–20 2011
NEA—National Economic Accounts 2009 (2010) Presidency of the Council of Ministers, Republic of Lebanon, October 2010
NPMPLT—National Physical Master Plan of the Lebanese Territory (2005). DAR-IAURIF, Final Report, December, 2010
Peter MW, Horridge M, Meagher GA, Naqvi F, Parmenter BR (1996) The theoretical structure Of MONASH-MRF. preliminary working paper no. OP-85, IMPACT Project, Monash University, Clayton
World Bank (2009) World Development Report 2009: reshaping economic geography. Washington
World Road Association (2003) The role of economic and socioeconomic models in road management. PIARC technical committee on road management, Paris
Metadata
Title
Spatial perspectives of increasing freeness of trade in Lebanon
Author
Eduardo A. Haddad
Publication date
01-08-2014
Publisher
Springer Berlin Heidelberg
Published in
The Annals of Regional Science / Issue 1/2014
Print ISSN: 0570-1864
Electronic ISSN: 1432-0592
DOI
https://doi.org/10.1007/s00168-014-0615-3

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