Comparative Advantage in the Middle East and North Africa

This paper asks whether net trade in the Middle East and North Africa (MENA) can be explained by differences in comparative costs and in the exploitation of scale economies. Based on a sample of six countries, it is shown that factor proportions do not significantly affect net trade. In an analysis based on a sample of three countries, we are also able to incorporate technical differences and differences in scale economies. We find no support of these variables significantly affecting net trade either. Therefore, we are fairly confident in drawing the conclusion that for our country sample, net trade does not seem to be explained by comparative costs, technical differences, or scale economies. This leads us to conclude that measures undertaken to increase trade between MENA countries without simultaneously removing domestic distortions may not be welfare improving.