General Equilibrium Analysis of Albania's Integration with the EU and South Eastern Europe

Abstract

The aim of this paper is to provide a framework for the analysis of implications of various trade policy options for Albania. We study the impact of implementation of the Stablization and Association Agreement, free trade agreements with South-East European neighbors and reduction of the MFN tariffs. We employ a computable general equilibrium (CGE) model, which allows for evaluation of the likely impact of trade agreements on trade, output, factor rewards, tariff revenue and welfare. Our simulations indicate that Albania has a lot to gain from further integration with its neighbors and the EU. However, the benefits from regional integration can only be realized as long as Albania gains better access for its exports on regional markets. Liberalization of trade with all trading partners allows for a permanent increase of Albanian GDP by 1% on a recurring annual basis and an increase of wages by 3.4% relative to their 2000 level.